[ Basic Principle ]

[The purpose of the FTAA origin regime is to ensure that only goods that qualify as originating benefit from preferential tariff treatment.]

[Unless otherwise specified,] for the purposes of the [Chapters] of this Agreement the following goods will be considered as originating in the territory of one [or more] of the Parties:

(a) minerals [and other non-living natural resources] [and other natural substances] extracted or taken from the territory of one [or more] of the Parties;

(b) vegetable [goods] [as such goods are defined in the Harmonized System]] harvested or gathered in the territory of one [or more] of the Parties;

[(c) live animals born and raised in the territory of one [or more] of the Parties ;]

[(d) goods obtained from live animals in the territory of one [or more] of the Parties];

(e) goods obtained from hunting, trapping, fishing or aquaculture [conducted] in the territory [or in the territorial waters and exclusive economic zone] of one [or more] of the Parties;

[(f) [fish, shellfish and other marine life] [products] taken from the sea [[outside territorial waters and maritime zones in which the Parties have jurisdiction,] [in accordance with the United Nations Convention on the Law of the Sea] whether] [, seabed or subsoil outside the territory of one or more of the Parties] by vessels registered [or] [,] recorded [or listed] [in] a Party and [flying] [entitled to fly] its flag or by vessels [leased [or chartered] by enterprises established in the territory of a Party;] [not exceeding [15] tons gross tonnage] [that are licensed by a Party]; ]

[(g) goods produced aboard [factory] ships from the goods referred to in subparagraph (e), provided such [factory] ships are registered, recorded [or listed] [in] one of the Parties [and entitled to fly its flag, or by [factory] ships leased by enterprises established in the territory of a Party];]

[(h) goods [other than fish, shellfish and other marine life,] taken [by a Party or a person of a Party] [or extracted] from [beneath] the seabed or subsoil [outside [the] [its] territorial [and patrimonial] waters [and exclusive economic zones], provided that [one of] [the] [that] Party[ies] [have] [or a person of one of the Parties has] rights to exploit such seabed or subsoil][of the continental shelf or the exclusive economic zone of any of the Parties];]

[(h’) goods, other than fish, shellfish and other marine life, taken or extracted from the seabed or the subsoil, in the area outside the continental shelf and the exclusive economic zone of any of the Parties or of any other State, as defined in the United Nations Convention on the Law of the Sea, by a vessel registered, recorded or listed with a Party and entitled to fly its flag, or by a Party or person of a Party;]

[(i) goods taken from [outer] space, provided they are obtained by a Party or a person of one [or more] of the Parties and not processed in a non-Party [country];]

[(j) waste and scrap [derived from the use, consumption or industrial processes carried out in the territory of any of the Parties, that are useable only for the recovery of raw materials; and] [derived from] production in the territory of one [or more] of the Parties, or

[waste and scrap [derived from the use, consumption or industrial processes carried out in the territory of any of the Parties, that are useable only for the recovery of raw materials; and] [derived from]] used goods collected in the territory of one [or more] of the Parties, provided such goods are fit only for the recovery of raw materials; and]

[(k) Goods produced in the territory of one [or more] of the Parties exclusively from goods referred to in the preceding sub-paragraphs [or from their derivatives],[at any stage of production].]

A good shall originate in the territory of one [or more] of the Parties when the good is produced [entirely] in the territory of one [or more] of the Parties exclusively from materials originating in accordance with [this Chapter] [articles 1.1, and 1.3.1 a), alternative 3 ].

1.3) [Goods produced in the territory of one or more Parties from originating and non-originating materials or exclusively from non-originating materials]

[1.3.1. [Goods produced from originating and/or non-originating materials shall be considered originating if they comply with the following conditions:

(a) they result from a production or transformation process carried out in the territory of one [or more] of the Parties; and this process vests in them a new individuality requiring different classification in the Harmonized System than the non-originating materials;

(b) goods that do not comply with a change in tariff classification, in which originating and non-originating materials from the territory of the Parties are used in the production or transformation process, provided the CIF value of the non-originating materials does not exceed …. percent of the FOB export value of the product [in the case of … or …]⁹; and

(c) goods that are assembled, provided that originating and non-originating materials from the territory of the Parties are used in their preparation and that the CIF value of the non-originating materials does not exceed … percent of the FOB export value [in the case of … or the …]¹⁰

Goods that comply with the Specific Requirements of Origin described in Annex … of this [Chapter] shall also be considered to originate in the territory of any of the Parties.]

[1.3.1^A A good shall qualify as originating from the territory of a Party when as a result of production occurring entirely in the territory of one or more Parties, each of the non-originating materials undergoes a change in tariff classification specified in Annex […] (Specific Rules of Origin) or the good satisfies the applicable requirements of that Annex where no change in tariff classification is required, and where the good satisfies all other applicable requirements of this Chapter. ]

[1.3.1^B A good shall be considered to have undergone sufficient production when each of the non-originating materials used in the production of the good satisfies the conditions set out for that good in Annex …(Specific Rules of Origin) and the good satisfies all other applicable requirements of this Chapter.]

[1.3.2^A Except as provided in Annex … [or except for a good of Chapter ____ of the Harmonised System], where a good and one or more of the non-originating materials used in the production of that good cannot satisfy the conditions in Annex … because both the good and the non-originating materials are classified in the same subheading, or under a heading that is not further subdivided into subheadings, the good shall be considered as having undergone [sufficient production][substantial transformation], provided that the value of the non-originating materials classified as or with the good does not exceed __ percent of the transaction value of the good.]

[1.3.2^B. Where the good is produced wholly in the territory of one or more of the Parties, but one or more of the non-originating materials used in producing the good does not undergo a change in tariff classification because:

i) the good has been imported into the territory of a Party without assembly or disassembled, but has been classified as an assembled good in compliance with rule 2 (a) of the General Rules for Interpretation of the Harmonized System, or

ii) the heading for the good is the same both for the good and for its parts and specifically describes them, and this heading is not divided into subheadings, or the subheading is the same both for the good and for its parts and describes them specifically,

shall be considered as originating provide that the regional content value of the good, determined in compliance with Article ….., is not less than ___ percent and the good meets the other applicable requirements in this [Chapter], unless the applicable rule of Annex … under which the good is classified specifies a different regional content value requirement, in which case this requirement should be applied.]

1.3.3. [Fish, shellfish or other marine life that has been taken from the sea, seabed or subsoil by a vessel of a non-Party to this Agreement and that has undergone substantial transformation on board a factory ship outside the territory of one or more of the Parties shall be considered as originating, provided that such factory ship is registered, recorded or listed with a Party and [flying][entitled to fly] its flag.]]

Option 3

[1.3.1 Goods produced from originating and non-originating materials shall be considered originating if they comply with the following conditions:

a) goods produced in the territory of a Party from non-originating materials that undergo a change in tariff classification and other requirements, as specified in the annex to this article and that fulfill other applicable provisions of this [Chapter];

b) goods produced in the territory of a Party from non-originating materials that undergo a change in tariff classification and other requirements, and the goods comply with a regional value content requirement, as specified in the annex to this article, and that fulfill other applicable provisions of this [Chapter]; or

c) goods produced in the territory of a Party and that meet a regional value content requirement as specified in the annex to this article and that comply with the other applicable provisions of this [Chapter].

1.3.2 For the purposes of this [Chapter], a good shall be produced entirely in the territory of a Party and all regional value content requirements of a good must be satisfied entirely in the territory of a Party.

1.3.3 For determining the origin of a good in accordance with the provisions of subparagraph a) of paragraph 1.3.1, if the good used materials determined to be originating in accordance with subparagraphs b) or c) of paragraph 1.3.1, the non-originating materials incorporated into them must satisfy the change in tariff classification of the good and other requirements, as specified in the annex to this article.

1.3.4 For determining the origin of a good in accordance with the provisions of subparagraph b) of paragraph 1.3.1, if the good used materials determined to be originating in accordance with subparagraphs b) or c) of paragraph 1.3.1, the non-originating materials incorporated in the latter must satisfy the change in tariff classification of the good and other requirements, as specified in the annex to this article, and the value of said non-originating materials shall be included in the calculation of the regional value content of the good, in accordance with subparagraph 1.4.

1.3.5 For determining the origin of a good in accordance with subparagraph c) of paragraph 1.3.1, if the good used materials determined to be originating in accordance with the provisions of subparagraphs b) or c) of paragraph 1.3.1, the value of said non-originating materials shall be included in the calculation of the regional value content of the good, in accordance with paragraph 1.4.

1.3.6. In establishing whether a good is originating, an exporter or producer may accumulate its production with that of one or more producers in its territory of non-originating materials that are incorporated into the good, so that the production of the materials is considered by the exporter or producer, provided it complies with the provisions of paragraphs 1.1, 1.2 and 1.3.1 to 1.3.5.]

[1.3.1 Goods shall be considered as originating in the territory of one of the Parties where they have been produced in one of the Parties wholly or partly from non-originating materials by a process which satisfies the conditions therefor specified in the Annex… to this [Chapter].]

[1.4.1 When regional value content is required under Annex I (Product-Specific Rules of Origin) to determine if a good is originating, each Party shall provide that the regional value content of a good shall be calculated on the basis of either of the following methods:

a) Method Based on Value of Non-Originating materials

RVC = AV - VNM x 100
                   AV

b) Method Based on Value of Originating Materials

RVC = VOM x 100
           AV

where,

RVC is the regional value content, expressed as a percentage;
AV is the adjusted value of a good;
VNM is the value of non-originating materials acquired by the producer in the production of the good;
VOM is the value of originating materials acquired by the producer for the production of the good.

1.4.2  Adjusted value of a good:

For purposes of the regional value content formulas and the application of de minimis, adjusted value means the customs value of the good as determined under Articles 1 through 8, Article 15, and the corresponding interpretative notes of the World Trade Organization Agreement on the Implementation of Article VII of the General Agreement on Tariff and Trade 1994 (WTO Agreement on Customs Valuation), adjusted to exclude the following costs, charges, and expenses, when these are not already excluded pursuant to a Party’s national legislation: any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation.

1.4.3 Value of Materials:

Except in the case of indirect materials and packing materials and containers for shipments, for purposes of calculating the regional value content of a good and for purposes of applying the “de minimis”, the value of a material shall be:

a) for a material imported by the producer of the good, the adjusted value of the material; or

b) for a material acquired in the territory where the good is produced, except for materials within the meaning of subparagraph c), the price actually paid or payable by the producer of the good; or

c) for a material where the relationship between the producer of the good and the seller of the material influenced the price actually paid or payable for the material, including a material obtained without charge, the sum of:

(i) all expenses incurred in the growth, production, or manufacture of the material, including general expenses; and

(ii) an amount for profit.

1.4.4 Adjustments to the Value of Materials

a) For originating materials, where not included under paragraph 1.4.3 above, the following expenses may be added to the value of the material:

(i) the costs of freight, insurance, packing and all other costs incurred in transporting the material within or between the Parties to the location of the producer,

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

(iii) 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 by-product.

b) For non-originating materials, where included under paragraph 1.4.3 above, the following expenses may be deducted from the value of the material:

(i) the costs of freight, insurance, packing and all other costs incurred in transporting the material within or between the Parties to the location of the producer,

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

(iii) 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 by-product, and

(iv) the cost of processing incurred in the territory of a Party in the production of the non-originating material,

(v) the cost of originating materials used in the production of the non-originating material in the territory of a Party.]

[A good shall be considered to be originating when in its production or transformation process originating and non-originating materials from the territory of the Parties are used, provided that the CIF value of the non-originating materials does not exceed….percent of the FOB export value of the product [ …..percent for smaller economies and/or countries in different levels of development].]

[1.4.1 [Except for the provisions of paragraph 1.4.5][For purposes of determining whether a good is originating,] 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 the transaction value method [established in paragraph 1.4.2] [or] [with the net cost method] [established in paragraph 1.4.4 ].]

[1.4.2 For calculating the regional value content of a good, based on the transaction value method, the following formula will be used:

           TV – VNM 
RVC = ----------------- x 100
                 TV

where

RVC is the regional value content, expressed as a percentage;

TV is the transaction value of the good adjusted on an FOB basis. [save for the provisions of paragraph 1.4.3][ If such value does not exist or cannot be determined according to the principles set forth in Article 1 of the Customs Valuation Agreement, it shall be calculated according to the principles set forth in Articles 2 through 7 of said Agreement]; and

VNM [is the transaction value of non-originating materials adjusted on a CIF basis. If such value does not exist or cannot be determined according to the principles set forth in Article 1 of the Customs Valuation Agreement, it shall be calculated according to the principles set forth in Articles 2 through 7 of said Agreement]]. [value of the non-originating materials used by the producer in the production of the good, determined in accordance with the provisions of article 1.5]

[For purposes of calculating regional value content, the value of non-originating materials used in the production of a good shall not include the value of non-originating materials used in the production of an originating material [acquired and] used in the production of that good.]

[[1.4.3. For the purposes of paragraph 1.4.2.] If the producer of a good does not export it directly, the [transaction] value shall be adjusted up to the point at which the purchaser receives the good in the territory where the producer is located. ]

[1.4.4. Each Party shall provide that an exporter or producer calculate the regional value content of a good solely on the basis of the net cost method set out in paragraph 1.4.4 when:

a) there is no transaction value because the good is not subject to sale;

b) the transaction value of the good cannot be determined due to existing restrictions on the transfer to or use of the good by the buyer, with the exception of those that:

i) are imposed or required by law or by the authorities of the Party where the buyer of the good is located;

ii) limit the geographic territory where the good can be resold; or

iii) do not noticeably affect the value of the good;

c) the sale or the price depend on a condition or consideration, the value of which cannot be determined for the good;

d) part of the proceeds of the resale of the good or of any subsequent transfer or use of the good reverts directly or indirectly to the seller, unless the due adjustment can be made in accordance with article 8 of the Customs Valuation Code;

e) the buyer and the seller are related and the relationship between them influences the price, except as provided in article 1.2 of the Customs Valuation Code;

f) the producer sells the good to a related person and the volume of sale in units of quantity of identical or similar goods sold to related persons during the six-month period immediately preceding the month in which the producer sold the good is greater than 85% of the producer's total sales of said goods during the period; and

g) the good is designated as an intermediate material pursuant to article 4.8 and is subject to a regional value content requirement.]

[1.4.5. To calculate the regional value content of a good on the basis of the net cost method, the following formula shall be used:

          NC ­ VNM
RVCr = --------------- x 100
             NC 

where 

RVC is the regional value content, expressed as a percentage.

NC is the net cost of the good.

VNM is the value of non-originating materials used by the producer in the production of the good, determined in accordance with article 1.5.]

1.5.1. For purposes of calculating the regional value content, the value of non-originating goods used by the producer in the production of the good shall be the sum of the values of the non-originating materials, determined in accordance with this article, imported from outside the territory of the Party and that are used in the production of the good or are used in the production of any material used in the production of the good.

1.5.2 Determination of the value of the materials

a) this shall be the transaction value of the material, or

b) in the event there is no transaction value or the transaction value of the material cannot be determined pursuant to the principles of Article 1 of the Customs Valuation Code, shall be calculated in accordance with the principles of Articles 2 to 7 of that Code.

1.5.3 When not considered in subparagraphs a) or b) of paragraph 1.5.2, the value of a material shall include:

a) freight, insurance, packing and all other costs incurred in transporting the material to the port of importation in the Party where the producer of the good is located, except as provided for in paragraph 1.5.4; and

b) the cost of waste and spoilage resulting from the use of the material in the production of the good, less the recovery of these costs, provided recovery does not exceed 30% of the value of the material determined in accordance with paragraph 1.5.2]

1.5.4 [If the producer of the good acquires a non-originating material in the territory of the Party in which it is located, the value of the non-originating material shall not include freight, insurance, costs of packaging and any other costs incurred in transporting the material from the supplier’s warehouse to the place where the producer is located.]

1.5.5 [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.]

[The determination of requirements for specific transformations shall be established on the basis of [compliance with productive processes and/or] exclusive use of regional inputs, materials, parts or components.]

[For the determination of specific requirements, consideration may be given to change in tariff classification on the basis of criteria other than general criteria, [compliance with basic productive processes,] exclusive use of inputs, the accumulation or combination of criteria established in Article 1.3.]

[Specific Requirements of Origin shall be established in exceptional, duly justified cases. They shall not be restrictive in nature, in terms of constituting obstacles for the competition to equitably tap the advantages stemming from the application of the Liberalization Program of this Agreement.]

[The specific requirements of origin shall prevail over general criteria for the qualification of origin [and shall be adopted when strictly necessary.]]

[The provisions in the preceding paragraph shall not apply to products wholly produced in the territory of any of the Parties, when only and exclusively originating materials of the Parties were used in their production.]

[The specific requirements of origin may be amended by the agency in charge of administering the Agreement.][The Parties shall define, by common consent [and of the agency in charge of administering the Agreement], the procedures, terms and requirements for establishing and revising the Specific Requirements of Origin. In this regard, the level of development of the Parties shall be taken into consideration.]

[The Parties may request review of a specific requirement of origin [by the entity in charge of administering the Agreement,] which should examine the Requirement and the reasons justifying its review, and adopt a final decision within six [6] months of the request for the review.]

[The Parties establish the Committee for Regional Integration of Inputs (CRII), the aim of which is to assess cases of non-compliance with a rule of origin, because of the inability of a producer of goods to obtain in the territory of Parties under conditions of timeliness, volume, quantity and price, the materials used by the producer in the production of a good.

The Committee for Regional Integration of Inputs shall be formed and shall be subject by the procedures stipulated in Annex 2.2 and the Regulations thereunder].

3.1. [ For determining the origin of a good, materials originating in the other Parties shall be considered as originating in the territory of a Party] [and processing carried out in the territory of a Party shall be considered as taking place in the Party in which final production takes place, provided that the materials or goods are transported in accordance with Article 6].

[3.1 For purposes of determining whether a good is originating, [the production of the good in the territory of one or more of the Parties by] [the exporter or producer of the good may accumulate its production with that of] one or more [other] producers [shall be considered to have been performed], in the territory of [one or more] [any] of the Parties, [so that the production of the materials is considered as if performed by that producer, provided that [the good complies with the provisions of Article 1.3]].]

[(a) all non-originating materials used in the production of the good undergo [sufficient production][substantial transformation] within the meaning of Article 1.3 of this [Chapter], entirely in the territory of one or more of the Parties; and

(b) the good satisfies all other applicable requirements of this [Chapter].]

[3.1. For purposes of determining whether a good is originating, at the choice of the exporter or producer of the good for which preferential tariff treatment is claimed, the materials originating in the territory of one or more of the Parties incorporated or used in the production of the good shall be considered originating, provided:

a) they are considered originating pursuant to the provisions of article 1.1;

b) they are considered originating pursuant to the provisions of article 1.2; or

c) they are considered originating pursuant to the provisions of subparagraph a) of  
    article 1.3.1.

3.2. For determining whether a good is originating, at the choice of the exporter or producer of the good for which preferential tariff treatment is claimed, the materials originating in the territory of one or more of the parties incorporated or used in the production of the good shall be considered in the following manner:

a) If, for determining the origin of the good in accordance with subparagraph a) of Article 1.3.1, this good used materials that qualify as originating pursuant to subparagraphs b) or c) of article 1.3.1, the non-originating materials incorporated in the latter must undergo the change in tariff classification corresponding to the good and meet other requirements, as specified in the annex to article 1.3;

b) if for determining the origin of the good in accordance with subparagraph b) or article 1.3.1, the good used materials that qualify as originating in accordance with subparagraphs b) or c) of article 1.3.1, the non-originating materials incorporated in the latter must undergo the change in tariff classification corresponding to the good and other requirements, as specified in the annex to article 1.3, and the value of said non-originating materials shall be considered in the calculation of the regional value content of the good, pursuant to article 1.4; or

c) if for determining the origin of the good in accordance with subparagraph c) of article 1.3.1, this good used materials that qualify as originating in accordance with subparagraphs b) or c) of article 1.3.1, the value of the non-originating materials incorporated in the latter shall be considered in the calculation of the regional value content of the good, pursuant to article 1.4.

3.3. For the purpose of establishing whether a good is originating, an exporter or producer may accumulate its production with that of one or more producers, in the territory of one or more Parties, of non-originating materials that are incorporated in the good, so that the production of said materials is considered as if performed by that exporter or producer, provided that the good complies with the provisions of paragraphs 3.1 and 3.2 of this article.]

[4.1.1 [Notwithstanding Article 1.3,] a good that does not comply with a change in tariff classification [in accordance with Annex …] shall be considered as originating if the [CIF] value of all non-originating materials that do not comply with the requirements of a change in tariff classification does not exceed ___ percent [of the adjusted value of the good] [of the transaction value of the good pursuant to Article 1.4.2][of the total FOB cost of the good in conformity with the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994,][provided that:

(a) [if the rule of Annex … applicable to the good contains a percentage for the maximum value of non-originating materials, the value of such non-originating materials shall be included in calculating the value of non-originating materials; and]

(b) the good satisfies all other applicable requirements of this [Chapter].] [and]

(c) [Annex…..(Specific Rules of Origin) does not specifically exempt the good from this provision].

[In the case] of countries included in Annex XXX (smaller economies) [and/or economies at different levels of development] [the following percentages shall apply: once the Agreement enters into force, … %, and from 2010 on, … %.]

[4.1.2 [A good that is subject to a regional value content requirement established in Annex … shall not be required to satisfy such requirement if the value of all non-originating materials is not more than (___%) of the transaction value of the good, adjusted on the basis indicated in paragraph 1.4.2 or 1.4.3, as the case may be, or in the cases referred to in subparagraphs a) through f) of paragraph 1.4.5, if the value of all the aforementioned non-originating materials does not exceed (___%) of the total cost of the good.]]

4.1.3 [Article 4.1.1 does not apply to:

a) goods provided for in chapters 50 through 63 of the Harmonized System; or

b) a non-originating material used in the production of a good provided for in chapters 01 through 27 of the Harmonized System unless the non-originating material is provided for in a different subheading than the good for which origin is being determined under this article.]

4.1.4 [In the case of goods classified in Chapters 50 through 63 of the Harmonized System, that do not originate because the fibers and yarns used in the production of the material that determines the tariff classification of the good do not undergo a change in tariff classification as stipulated in Annex … , they shall nonetheless be considered as originating if the total weight of such fibers and yarns in that component is not more than (___%) of the total weight of that component.]

[In the case described in the previous paragraph, the producer shall not be obligated to comply with any other rule of origin.] [This Article shall not apply to goods that member countries wish to except.]

[4.2.1. For purposes of determining whether a material or a good qualify as originating, the following shall be taken into account:

(a) where originating and non-originating fungible goods and materials are commingled or physically combined in inventory and prior to their export to the territory of another Party do not undergo any productive process or any other operation, the origin of the good may be determined on the basis of any of the applicable inventory management methods [agreed between the Parties][that are set out in article 4.2.2.]

(b) where originating and non-originating fungible materials are used in the production of a good, and are commingled or physically combined in inventory, the origin of the materials shall be determined on the basis of any of the applicable inventory management methods [agreed between the Parties][that are set out in article 4.2.2.]

(c) [Once one of the inventory management methods has been selected, it shall be used for the entire period or fiscal year.]

4.2.2. The inventory management methods applicable to fungible goods or materials shall be the following:

a) "f-i-f-o" (first in-first out) is the inventory management method by which the origin of the number of units of fungible materials or goods that are first received in inventory are considered the origin, in like number of units, of the fungible materials or goods that first leave inventory;

b) "l-i-f-o" (last in-first out) is the inventory management method by which the origin of the number of units of fungible materials or goods received last in inventory is considered the origin, in like number of units, of the fungible materials and goods that first leave inventory;

c) "averages" is the inventory management method by which, except as provided in subparagraph d), the determination as to whether the fungible materials or goods are originating is made by applying the following formula:

              TOM
AOM  = __________ x 100

              TONM

where

AOM      average of originating fungible materials or goods.

TOM       total units of originating fungible materials or goods that are a part of
              inventory before exiting.

TONM     sum total of units of originating and non-originating fungible materials and
              goods that are part of the inventory before exiting.

d) in the case of a good subject to a regional value content requirement, the following formula is used for determining non-originating fungible materials:

              TNM
ANM  = __________ x 100

              TONM

where

ANM       average non-originating materials.

TNM        total value of non-originating materials that are a part of the inventory before
               exiting.

TONM      total value of originating and non-originating fungible materials that are a
               part of the inventory before exiting.]

4.3) Sets [and][or] assortments.

[4.3.1. [Sets [and] [or] assortments of goods [classified pursuant to rule 3 of the General Rules of Interpretation of the Harmonized System,] [as well as goods whose description conforms to the Harmonized System Nomenclature, whether specifically that of a set or assortment,] shall qualify as originating, provided that:

(a) all the component goods in the set or assortment, including packaging materials and containers, are originating; or

(b) where a set or assortment contains non-originating component goods, including packaging materials and containers:

Option 1

(i) each of the goods contained in the set or assortment complies with the corresponding specific rule of origin]

Option 2

(i) at least one of the component goods, or all the packaging materials and containers for the set or assortment, is originating, and

(ii) [a set or assortment of goods shall be considered originating if the value of non-originating goods used in the formation of the set or assortment [, adjusted on a CIF basis,] does not exceed ____ percent of the value of the set or assortment [.]] [, adjusted on a FOB basis]], or [ when a set or assortment of goods is comprised of originating and non-originating goods shall be considered originating if the value of non-originating goods used in the formation of the set or assortment including any non-originating packaging materials and containers for the set, does not exceed __ percent of the transaction value of the set, adjusted on the basis indicated in paragraph 1.4.2 or 1.4.3, as appropriate, or in the cases referred to in subparagraphs a) through f) of paragraph 1.4.5, if the value of all the aforementioned non-originating goods does not exceed (___%) of the total cost of the set or assortment.]

The provisions of this section shall prevail over the specific rules set forth in Annex … of specific rules.]

4.4.1. Accessories, spare parts and tools delivered with the good that [usually] form part of the same 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 a good undergo the applicable change of tariff classification set out in Annex … provided that:

[a) the accessories, spare parts and tools are not invoiced separately from the good, irrespective of whether each is broken down or detailed in the actual invoice; [and]]

[b) the quantity and value of the accessories, spare parts and tools are customary for the good being classified.]

4.4.2. [Where the good is subject to a [value consideration] [regional value content requirement], the accessories, spare parts and tools shall be considered to be originating or non-originating materials, as appropriate, for calculating the [regional value content of the good.] [value of the non-originating materials,]

4.4.3. [Accessories, spare parts and tools, imported with a piece of equipment, machine, apparatus or vehicle which are part of the normal equipment and which are included in the price thereof or are not invoiced separately, shall be regarded as one with the piece of equipment, machine, apparatus or vehicle.]

4.4.4. [The corresponding rule of origin shall be applied separately to each of the accessories, spare parts and tools that do not meet the above conditions.]

4.5.1. [Except as provided in Article 4.3,] [p] Packaging materials and containers in which a good is packaged for retail sale shall [, if classified as one with the good,][in accordance with General Rule 5 b of the Harmonized System,] be disregarded in determining whether all the non-originating materials used in the production of the good undergo the applicable change in tariff classification or fulfil any other condition established in Annex …

[4.5.2. However, [where the good is subject to a regional value content requirement], if the rule of Annex … applicable to the good contains a percentage for the maximum value of non-originating materials, the value of any non-originating packaging materials and containers shall [be disregarded in determining the origin of the goods, where the packaging materials and containers are those used usually, and they are classified as one with the goods and are not priced separately.] [be taken into account as originating or non-originating, as the case may be, in calculating the [value of non-originating materials] [regional value content of the good].] ]

4.6) [Packaging] [Packing], materials and containers for shipment.

[4.6.1 [Packaging] [Packing] materials and containers in which a good is packed for transport shall be disregarded for the purpose of determining [the origin of the good] [.] whether [all] the non-originating materials used in the production of the good comply with the applicable change in tariff classification required.

4.6.2 If the good is subject to the regional value content requirement, the value of the [packaging] [packing] materials and containers for transport of the good [shall be disregarded when determining the origin of the goods.] [shall be considered to be originating or non-originating, as appropriate, for calculating the regional value content of the good and the value of that material shall be the cost thereof reported in the accounting records of the producer of the good.] ]

4.7.1. [An indirect material shall be considered to be an originating material without regard to where it was produced [[and the value of that material shall be the cost thereof reported in the accounting records of the producer of the good] [or other evidence providing a reasonable indication of its value]].]

[Indirect materials may include, among others, all those used in the production, verification or inspection of a good but that are not physically incorporated into it; or goods used for the maintenance of buildings or for operating equipment related to the production of the good, including, but not limited to:

(a) fuel and energy;

(b) machines, tools, dies and molds;

(c) spare parts and materials used in the maintenance of equipment and buildings;

(d) lubricants, greases, compounding materials and other materials used in production or used to operate equipment and/or buildings;

(e) gloves, glasses, footwear, clothing, safety equipment and safety supplies;

(f) equipment, devices and supplies used for testing or inspecting goods;

(g) catalysts and solvents; and

(h) any other goods not incorporated into the good but whose use in the production of the good can be reasonably demonstrated.]

4.8) Intermediate materials used in production.

4.8.1. [An intermediate material is defined usa material that is self-produced that contains non-originating inputs and satisfies the conditions required to qualify as originating, and which subsequently is used in the production of final goods in a Party. Non-originating inputs of intermediate materials shall be disregarded for classification of the origin of the final goods of which they are a part.]

[4.8.1. For the purposes of determining the origin of a good, a producer of a good may, at the producer's choice, designate any self-produced material used in the production of the good as an intermediate material to be taken into account as an originating or non-originating material, as the case may be, in determining whether the good satisfies the applicable requirements of the rules of origin.]

[4.8.1. For purposes of calculating the regional value content in accordance with article 1.4, the producer of a good may designate as an intermediate material any self-produced material used in the production of the good, provided said material complies with the provisions of Articles 1.1 to 1.3 and Article 3.

4.8.2. When the intermediate good is subject to a regional value content requirement in accordance with Annex… , it shall be calculated on the basis of the net cost methods established in article 1.4 and the good must satisfy all other applicable requirements of this [Chapter].

4.8.3. For purposes of calculating the regional value content of the good, the value of the intermediate material shall be the total cost that can be reasonably allocated to such intermediate material in accordance with the annex to article 1.4; moreover, the value of the intermediate goods used by the producer in the production of the good shall be the sum of the values of the non-originating materials, determined in accordance with article 1.5, imported from outside the territory of the party and that are used in the production of the good or that are used in the production of any material used in the production of the good.

4.8.4. If a material designated as an intermediate material is subject to a regional value content requirement, no other self-produced material subject to a regional value content used in the production of such intermediate material can, in turn, be designated by the producer as an intermediate material.]

[5.1. When non-originating goods or materials are used, the following operations or processes, [among others,] shall be considered insufficient to confer origin:

[a) the mere dilution with water or another substance that does not materially alter the characteristics of the good.]
[b) simple operations for conserving the goods during transport or storage, such as airing, refrigeration, removal of damaged parts, drying or the addition of substances;
c) dusting, screening, peeling, classification, selection, washing, cutting;
d) packing, repacking, division into lots or packaging for retail sale;
e) the collection of goods to make sets or assortments;
f) the application of marks, labels or other distinguishing signs;
g) cleaning, including the removal of rust, grease, paint or other coverings;
h) the slaughtering of animals;
i) the application of oils; and
j) the accumulation of two or more of these operations.]

[A good shall not be considered as originating merely by reason of a change in tariff classification that is the result of:

(a) disassembly of the good into its parts;
(b) a change in the end use of the good;
(c) the mere separation of one or more individual materials or components from an artificial mixture.]

[Minimal processing operations or a combination of such operations shall not prevent the conferring of origin to a good if it has been sufficiently transformed as a result of other operations or processes.]

[5.2. Any pricing activity or practice, the objective of which it can be sufficiently demonstrated is to circumvent the provisions of this [Chapter], shall not confer origin on a good.]

[5.3. The provisions of this article shall prevail over the specific rules established in Annex …] ]

6.1 [In order for originating goods to receive preferential treatment, they must have been shipped directly from the exporting Party to the importing Party. For such purpose, direct shipment shall be considered:

a) Goods transported without passing through the territory of a State not a Party to the Agreement; or

b) Goods in transit through one or more States that are not Party to the Agreement, with or without transshipment or temporary warehousing, under the supervision of the competent customs authority, provided that:

i) the transit is justified for geographical reasons or considerations related to transport requirements;

ii) they are not destined for commercial trade or use in the transit State;

iii) they do not undergo, during their transport or warehousing, any operation other than [packing] [packaging] loading, unloading or [handling] [or operations] to keep them in good condition or ensure their conservation.]

[6.1. A good shall not be considered to be originating even when it has been produced in accordance with the requirements of article 1 if, subsequent to its production, the good undergoes further production or any other operation outside the territories of the Parties, other than unloading, reloading or any other operation necessary to preserve it in good condition or to transport the good to the territory of the other Party.]

[7) INVOICING CARRIED OUT BY THIRD PARTIES]

7.1 [Pursuant to the provisions of this [Chapter], goods that are originating shall receive tariff preferences, irrespective of the form or destination of the payment made by the importing Party. In this respect, the commercial invoice may be issued by a third Party, [whether or not a member of the Agreement,] provided that the goods are shipped directly pursuant to the provisions of article 6.]

[For purposes of this [Chapter]:

a) the basis for tariff classification is the Harmonized System;

b) the transaction value of a good or material shall be determined in accordance with the principles of the Customs Valuation Agreement ; [and

c) all costs referred to in this [Chapter] shall be recorded and maintained in accordance with the generally accepted accounting principles applicable in the territory of the party in which the good is produced.]]

[For the purpose of this [Chapter] in applying the Customs Valuation Agreement for determining whether a good is originating:

a) the principles of the Customs Valuation Agreement shall apply to domestic transactions, with such modifications as may be required by the circumstances, as would apply to international transactions; and

b) the provisions of this [Chapter] shall take precedence over the Customs Valuation Agreement to the extent of the incompatibity.]

[For the purpose of this [Chapter],

aquaculture: the farming of aquatic organisms including fish, mollusks, crustaceans and aquatic plants, throughout their rearing or growth period, by effecting change in the rearing or growth process to enhance production, such as regular stocking, feeding, protection from predators, etc.;

customs authority:: as defined in the [Chapter] on Customs Procedures;

customs value: the value as determined in accordance with the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (WTO Agreement on Customs Valuation);

direct production costs and expenditures: the costs and expenditures incurred during a period in which they are directly to the good, other than the cost or value of direct materials and the cost of direct labor;

f.o.b.: free on board;

fungible goods: means goods that are interchangeable for commercial purposes, whose properties are essentially identical and for which it is impractical to differentiate one from another by a mere visual examination;

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

generally accepted accounting principles the recognized consensus to the substantial authoritative support in the territory of a party, with regard to the recording of income, expenditures, costs, assets and liabilities, disclosure of information and preparation of financial statements. These standards can include both broad guidelines for general application and detailed practical standards and procedures.

good any merchandise, product, article or material;

goods wholly obtained or produced entirely in the territory of a party :

a) mineral goods extracted in the territory of a party;

b) vegetables harvested in the territory of a party;

c) live animals born and raised in the territory of one a party;

d) goods obtained from hunting or fishing in the territory of a party;

e) fish, shellfish and other marine life taken from the sea by vessels registered or recorded with a party and flying its flag;

f) goods produced on board factory ships from the goods referred to in subparagraph (e) provided such factory ships are registered or recorded with a party and flying its flag;

g) goods taken by a party or a person of a party from the seabed or beneath the seabed outside territorial waters, provided that a party has rights to exploit such seabed;

h) waste and scrap derived from:

i) production in the territory of a party, or

ii) used goods collected in the territory of a party, provided such goods are fit only for the recovery of raw materials; and

i) goods produced in the territory of one or more of the parties exclusively from goods referred to in subparagraphs a) through h), or from their derivatives, at any stage of production;

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

indirect material 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:

a) fuel and energy;

b) tools, dies and molds;

c) spare parts and materials used in the maintenance of equipment and buildings;

d) lubricants, greases, compounding materials and other materials used in production or used to operate equipment and buildings;

e) gloves, glasses, footwear, clothing, safety equipment and supplies;

f) equipment, devices, and supplies used for testing or inspecting the goods;

g) catalysts and solvents; and

h) any other goods that are not incorporated into the good but whose use in the production of the good can reasonably be demonstrated to be a part of that production;

indirect production costs and expenditures: the costs and expenditures incurred during a period, other than the direct production costs and expenditures, direct cost of labor, and the cost or value of direct materials;

intermediate material: a material that is self-produced and used in the production of a good, and designated pursuant to Article ro-a.4.8;

material: a good that is used in the production of another good [and includes a part or ingredient];

net cost: total cost minus sales promotion, marketing and aftersales service costs, royalties, shipping and repacking costs, and nonallowable interest costs, in accordance with the provisions in the annex to this article;

non-allowable interest costs: interest costs incurred by a producer on its financial obligations that exceed 10 percentage points above the highest interest rate of the debt obligations issued by the central or federal government of the party in which the producer is located, in accordance with the provisions of the annex to this article;

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

packing containers and materials for shipment: goods used to protect another good during transportation, other than the containers and materials for retail sale;

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

producer’s location: with respect to a good, the production plant of that good.

production: growing, mining, removing, harvesting, fishing, hunting, manufacturing, processing or assembling a good;

related person: a person related to another person on the basis that:

a) they are officers or directors of one another's businesses;

b) they are legally recognized partners in business;

c) they are employer and employee;

d) any person directly or indirectly owns, controls or holds 25 percent or more of the outstanding voting stock or shares of each of them;

e) one of them directly or indirectly controls the other;

f) both of them are directly or indirectly controlled by a third person;

g) together they directly or indirectly control a third person; or

h) they are members of the same family (children, brothers, sisters, parents, grandparents, or spouses);

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

a) sales and marketing promotion; media advertising; advertising and market research; promotional and demonstration materials, exhibits; sales conferences, trade shows and conventions; banners; marketing displays; free samples; sales, marketing and after sales service literature (product brochures, catalogs, technical literature, price lists, service manuals, sales aid information); establishment and protection of logos and trademarks; sponsorships; wholesale and retail restocking charges; entertainment;

b) sales and marketing incentives; consumer, retailer or wholesaler rebates; merchandise incentives;

c) salaries and wages, sales commissions, bonuses, benefits (for example, medical, insurance, pension), travelling and living expenses, membership and professional fees, for sales promotion, marketing and aftersales service personnel;

d) recruiting and training of sales promotion, marketing and aftersales service personnel, and aftersales training of customers' employees;

e) product liability insurance;

f) office supplies for sales promotion, marketing and aftersales service of goods;

g) telephone, mail and other communications for purposes of sales promotion, marketing and aftersales service;

h) rent and depreciation of sales promotion, marketing and aftersales service offices and distribution centers;

i) property insurance premiums, taxes, cost of utilities, and repair and maintenance of offices and distribution centers; and

j) payments by the producer to other persons for warranty repairs;

self-produced material: a material that is produced by the producer of a good and used in the production of that good;

shipping and repacking costs: the costs incurred in repacking a good and shipping the good outside the territory where the producer or exporter of the good is located;

total cost: the sum of the following elements, in accordance with the provisions in the annex to this article:

a) the cost or value of direct materials of production used in producing the good;
b) the cost of direct labor used in producing the good; and
c) an amount for direct and indirect production costs and expenses of the good reasonably allocated to same;

transaction value: the price actually paid or payable for a good or material with respect to a transaction of the producer of the good, adjusted in accordance with the principles of paragraphs 1, 3 and 4 of Article 8 of the WTO Agreement on Customs Valuation to include, inter alia, such costs as commissions, production assists, royalties or license fees;

transaction value of a good: the price actually paid or payable for a good with respect to a transaction of the producer of the good, in accordance with the principles of article 1 of the Customs Valuation Code, adjusted in accordance with the principles of articles 8.1, 8.3 and 8.4 of said Code, regardless of whether the good is sold for export. For the purpose of this definition, the seller referred to in the Customs Valuation Code shall be the producer of the good;

transaction value of the good: including for purposes of this definition sets or assortments of Article 4.3 and of Annex …, means

a) the transaction value of a good when sold by the producer at the place of production,
b) the customs value of that good,

transaction value of a material: the price actually paid or payable for a material with respect to a transaction of the producer of the good, in accordance with the principles of article 1 of the Customs Valuation Code, adjusted in accordance with the principles of articles 8.1, 8.3 and 8.4 of said code, regardless of whether  the material is sold for export. For the purpose of this definition, the seller referred to in the Customs Valuation Code shall be the supplier of the material and the buyer to which the customs valuation code refers to shall be the producer of the good;

used: used or consumed in the production of goods;

value of non-originating materials, including for purposes of this definition non-originating component goods as referred to in Article 4.3 and in Annex …, non-originating accessories, spare parts and tools as referred to in Article 4.4 and non-originating packaging materials and containers as referred to in Article 4.5, means:

i) the transaction value or the custom value of the materials at the time of their importation into a Party, adjusted, if necessary, to include freight, insurance, packing and all other costs incurred in transporting the materials to the place of importation; or

ii) in the case of domestic transactions, the value of the materials determined in accordance with the principles of the WTO Agreement on Customs Valuation in the same manner as international transactions, with such modifications as may be required by the circumstances.]

[11) CONSULTATION AND MODIFICATIONS]

[11.1. The Parties create the Rules of Origin Committee, comprising representatives from each Party, which shall meet at least twice a year, and at the request of any Party.

11.2 The Committee shall:

a) ensure effective implementation and administration of this [Chapter];

b) reach agreement on the interpretation, application and administration of this [Chapter];

c) in relation to non-allowable interest costs, revise on an annual basis, the percentage points on the highest interest rate of the debt obligations issued by the central or federal government, and

d) address any other matter agreed to by the Parties.

11.3. 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].

11.4.1 Any Party that considers that this [Chapter] requires modification to take into account developments in production processes or other matters may submit to the consideration of the Committee a proposed modification along with supporting rationale and any studies that support it. The Committee shall present a report to the Commission for making the pertinent recommendations to the Parties.]

[ANNEX TO ARTICLE 1.3

 

Continue with [CHAPTER] ON CUSTOMS PROCEDURES

Return to Index

⁹ The percentage differentials and their levels in subparagrahs b) and c) will be determined during the course of the negotiations, and will take into account the countries’ different levels of development and the size of the economies.

¹⁰ CIF and FOB values referred to in subparagrahs b) and c) may correspond to their equivalent value according to the used transportation means. In the case of Bolivia, equivalent value means the CIF Port value in cases of imports by sea or CIF Border in cases of imports by other means.