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Accumulation

When producers determine the regional value content of goods, the entire value of the materials used in the production of the goods that they acquire from suppliers is considered as wholly originating or wholly non-originating, as appropriate. The accumulation provision allows the producer or exporter of goods to choose to include as part of the goods' regional value content any regional value added by suppliers of non-originating materials used to produce the final goods. Thus, accumulation allows the producer to reduce the value of the non-originating materials used in the production of the good, by taking into account the NAFTA inputs incorporated into those non-originating materials.

Thus, where a producer finds he is unable to satisfy a regional value-content requirement based on (i) his own processing costs and (ii) the value of originating materials he uses to produce a good, accumulation allows him to include (iii) any regional value added in the NAFTA territory by other persons who produced non-originating materials that were subsequently incorporated into the final good.

The conditions for using accumulation are:

  • producers/exporters who choose to use accumulation must use the net cost method to calculate any regional value content;
  • producers/exporters of goods must obtain information on net cost and the regional value content of non-originating materials used to make their goods from the producers (suppliers) of those materials--it will not be obtained by government authorities;
  • all non-originating materials used in the production of the goods must undergo the tariff classification change set out in Annex 401 of the Agreement, and the goods, must satisfy any applicable regional value-content requirement, entirely in the territory of one or more of the NAFTA countries; and
  • the goods must satisfy all other applicable requirements of the rules of origin.
Company A imports unfinished bearing rings (HTS 8482.99) into Canada from Japan and further processes them into finished rings (HTS 8482.99.11 in Canada). Since the finished bearing rings contain non-originating materials, they must satisfy the Annex 401 origin criterion to be considered originating. The Annex 401 origin criterion for HTS 8482.99 is:

A change to subheading 8482.91 through 8482.99 from any other heading.

Since the unfinished bearings rings are classified in the same tariff subheading as the finished rings, there is no change in headings. Accordingly, the finished bearing rings cannot be considered originating, even though they contain some regional value content by virtue of the labor and other costs associated with the finishing operations in Canada.

Company A's per unit cost is:

Non-originating (Japanese) materials $0.75
Originating materials 0.15
Labor 0.35
Overhead 0.05
Total cost 1.30

Subsequently, Company A sells the finished rings (HTS 8482.99.11 in Canada) for $1.45 to Company B in the United States, who incorporates the rings into ball bearings (HTS 8482.10). Company B exports the bearings to Mexico and wants to claim NAFTA preferential treatment. The rule of origin for HTS 8482.10 is:

A change to subheading 8482.10 through 8482.80 from any subheading outside that group, except from Canadian tariff item 8482.99.11 or 8482.99.91, U.S. tariff item 8482.99.05, 8482.99.15, 8482.99.25 or Mexican tariff item 8482.99.01 or 8482.99.03; or

A change to subheading 8482.10 through 8482.80 from Canadian tariff item 8482.99.11 or 8482.99.91, U.S. tariff item 8482.99.05, 8482.99.15, 8482.99.25 or Mexican tariff item 8482.99.01 or 8482.99.03, whether or not there is also a change from any subheading outside that group, provided there is a regional value content of not less than:

  1. 60 percent where the transaction value method is used, or
  2. 50 percent where the net cost method is used.
The bearings do not meet the tariff change described in the first rule.

They do, however, meet the tariff change described in the second rule and, provided they satisfy one of the two regional value-content requirements, can be considered originating. Company B knows it is short in meeting the regional value content under either method so it decides to accumulate its regional value content with that of Company A. Assuming Company A sold the rings to Company B for $1.45 per unit, and A is willing to disclose to B the regional value content in the finished rings that it sold to B, the following demonstrates the benefits of accumulation:

Without Accumulation
Non-originating ring (A) $1.45
Originating material (B) $0.45
Labor (B) $0.75
Overhead (B) $0.05
Total $2.70
With Accumulation
Non-regional value content of ring (A) $0.75
Regional value content of ring (A) $0.55
Originating material (B) $0.45
Labor (B) $0.75
Overhead (B) $0.05
Total $2.55
The $0.75 represents the value of the non-originating materials, which in this case are the unfinished bearing rings imported into Canada from Japan.

The regional value content, using the net cost method, is:

RVC = NC -- VNM x 100
NC
RVC = regional value content
NC = net cost
VNM = value of non-originating materials
Therefore, the regional value content calculation, with and without accumulation, is:
Without Accumulation With Accumulation
$2.70 -- $1.45 x 100 = 46% $2.55-- $0.75 x 100 = 71%
$2.70 $2.55
Thus, accumulation allows Company B to qualify the bearings as originating by aggregating the regional value content of both Company A and Company B.

 

Last modified: 
May 28, 2014
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