NAFTA Verification and Audit Manual

U.S.
Customs and Border Protection - Import
Tuesday, September 25, 2007

SEARCH
Home
About CBP
Contacts
Ports
Questions
Forms
Publications
Antidumping and
Countervailing Duties
(ADCVD)
Broker Management
Cargo Control
Cargo Summary
Carriers
NAFTA Verification/Audit Manual

The NAFTA Verification/Audit Manual is developed to support the
verification of goods for which NAFTA preferential tariff treatment has
been claimed comply with the rules of origin. This trilateral guide
details the recommended technical verification framework to be
observed by each Party when conducting NAFTA verifications. This
trilaterally agreed upon manual also provides significant automobile
information.
Commercial Enforcement
Communications to Trade
Infrequent Importer/
Traveler
International Agreements
Trade Initiatives
Sitemap
- Chapter 1: Purpose of the Manual and Legislative

Framework
doc - 32 KB.
- Chapter 2: Co-operation Among the Parties
doc - 30 KB.
- Chapter 3: Auditing Standards
doc - 75 KB.
- Chapter 4: Objectives of NAFTA Audits (Verifications)
doc - 28 KB.
Search NAFTA Verification/Audit

Manual for:
section sitemap for

NAFTA Verification/Audit Manual
see also:
in North American
Free Trade Agreement
(NAFTA) :
Advance Rulings
Annex 401
Appeals
Certificate of Origin
Claiming Preferential
Treatment
Commercial Samples
Commodity Specific
Information
...more
- Chapter 5: Scope of the NAFTA Audits (Verifications)

doc - 196 KB.
- Chapter 6: Methodology for Rules of Origin Audits
(Verifications)
Downloaded 9/25/2007
Informed Compliance
Textiles and Quotas
- Introduction and Executive Summary

doc - 27 KB.
Duty Rates/HTS
Regulatory Audit
Contracting
Home / Import / International Agreements / International Free Trade Agreements / North American Free
Trade Agreement (NAFTA) /
Import
Operations Support
Legal
doc - 90 KB.
- Chapter 7: NAFTA Working Groups
doc - 24 KB.
- U.S. Appendix
doc - 1,136 KB.
How to
Use the Website
Featured RSS Links
Newsroom
Home
Border Security
Import
Export
Travel
Careers
About CBP
Contacts
Ports
Questions
Forms
Publications
Legal
Contracting
Sitemap
EEO | FOIA | Privacy Statement | Get Plugins
U.S. Customs & Border Protection | 1300 Pennsylvania Avenue, NW Washington, D.C. 20229 | (202) 354-1000
http://www.cbp.gov/xp/cgov/import/international_agreements/free_trade/nafta/verification_audit_manual/9/25/2007 10:54:40 AM
Department of
Homeland Security
NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

AUDIT (VERIFICATION) MANUAL
UNITED STATES CUSTOMS SERVICE
REGULATORY AUDIT DIVISION
NORTH AMERICAN FREE TRADE AGREEMENT
AUDIT (VERIFICATION) MANUAL TABLE OF CONTENTS
Introduction
Executive Summary
INTRODUCTION
As a result, it has become important for the Customs Administration of each Party to verify that
the goods for which NAFTA preferential tariff treatment has been claimed comply with the Rules
of Origin.
In this respect, the three Customs Administrations have considered that the establishment of
verification guidelines is important and useful. The Customs Administrations of all Parties have
consulted during the development of this manual and these guidelines include general,
examination and reporting standards for NAFTA origin verifications.
This manual is intended to be used by: Origin Audits Unit of Revenue Canada (Canada);
Direction of International Audit of the Ministry of Finance and Public Credit (Mexico); and, the
offices of Regulatory Audit and Field Operations, U.S. Customs Service (United States).
However, portions of this manual may also be used by other areas within each Customs
Administration as deemed appropriate.
The main purpose of this document is to establish the recommended technical verification
framework to be observed when conducting NAFTA verifications. The application of the
provisions included therein should take into consideration the circumstances involved in each
verification and be adapted accordingly. It is understood that this document will be updated on a
continual basis.
This of the NAFTA Verification Manual provides revisions to the November 1995 version to reflect
changes in the Regulations which became effective on October 1, 1995.
EXECUTIVE SUMMARY
This manual considers all types of verifications, but focuses on the on-site audit process for
exporter verifications where the regional value content requirement, tariff change requirement, or
both, must be met. It should be noted that this manual provides verification procedures that are
recommended by all Parties.
With the entry in force of the North American Free Trade Agreement (NAFTA), the Parties have
experienced a significant increase in the trade of goods and services between them. The three
Customs Administrations have agreed that the Rules of Origin as set out in Chapter Four of the
NAFTA and the NAFTA Rules of Origin Regulations (the Regulations), define the framework to be
observed by exporters/producers in order to have their goods qualify as "originating goods", and
be eligible for a NAFTA preferential tariff treatment when imported into the territory of any of the
other Parties to the Agreement.
There are seven chapters contained in this manual. Included is an annex at the end of most
chapters. The Annex contains information for the particular chapter that may differ among the
Parties. The chapters within this U.S. version of the NAFTA Verification Manual includes
information unique to the U.S. Information differing in Mexico and/or Canada, is included at the
end of the chapter in the Annex. The highlights for each chapter are as follows:
Chapter 1, Purpose of the Manual and Legislative Framework, points out the need for this audit
(verification) manual, and refers to the legal framework by which NAFTA verifications are
conducted.
Chapter 2, Co-operation Among the Parties, discusses the exchange of information and
communication between Customs Administrations subject to NAFTA.
Chapter 3, Auditing Standards, demonstrates how the Generally Accepted Auditing Standards
have been incorporated into each Party's audit (verification) process.
Chapter 5, Scope of the NAFTA Audits (Verifications), describes the parameters of coverage for
NAFTA exporter verifications including the verification period, coverage, importer identification,
and assessment/liquidation period. This Chapter also includes recommended verification
procedures that are identical and uniform for all Customs Administrations.
Chapter 6, Methodology for Rules of Origin Audits (Verifications), explains the verification
process for NAFTA exporter verifications.
Chapter 7, NAFTA Working Groups, refers to the contact areas within the Customs
Administration of each Party with respect to verification issues and their relationships with the
NAFTA Working Groups.
LIST OF APPENDICES
A
B
C
D
E
F
G
H
Certificate of Origin CF-434
General Questionnaire CF-446

Election to Average Form for Vehicles CF-447
Sample Letter Proposing NAFTA Verification Visit
Sample Notification of NAFTA Verification of Goods to Known Importers of Record
Review of Policies, Procedures, and Internal Controls Checklist
Final Written Determinations- Positive and Negative
Sample Notification of Verification Results to Known Importers
(1)
Goods met NAFTA rule of origin requirements
(2)
Goods did not meet NAFTA rule of origin requirements
I
Supplier Confirmation Letters
(1)
for non-automotive parts suppliers
(2)
for automotive parts suppliers
J
Supplier Verification Notification
K
Regulatory Audit Final Audit Reports
L
Goods Wholly Obtained or Produced Entirely in the Territory of One or more of the Parties
M
Goods Produced entirely in the Territory of One or More of the Parties Exclusively from
Originating Materials
N
Preference Criteria D
Chapter 4, Objectives of NAFTA Audits (Verifications), outlines the objectives of NAFTA exporter
on-site verifications as well as the verification program objectives for this type of verification.
O
P
Q
R
Light Duty Automotive Goods - Averaged

Light Duty Automotive Goods - Non-Averaged
Heavy Duty Automotive Goods - Averaged
Heavy Duty Automotive Goods - Non-Averaged

CHAPTER 1 PURPOSE OF THE MANUAL AND LEGISLATIVE FRAMEWORK
1.1 Purpose of the Manual
This verification manual presents the audit process and the recommended verification procedures
with which an auditor or officer must be familiar in order to conduct a verification and perform
other related tasks for the North American Free Trade Agreement (NAFTA). This manual is
intended to provide the user with a clear understanding of the verification function. Reference to,
or usage of, the manual in daily activities will result in verifications and other related tasks being
done in an efficient and uniform manner, that is consistent with established policies and
procedures.
1.2 Scope
This manual covers subjects which are related to the process and the recommended procedures
pertinent to conducting verifications under the provisions of the NAFTA. The manual does not
deal specifically with interpretations and rulings on origin, as these subjects are covered by other
directives issued by each Customs Administration. This manual explains the use of various
reports, forms, and working papers that are required for the audit activity. (Examples are included
in the appendices).
1.3 Amendments
Changes in legislation, regulations and administrative policies may necessitate changes or
updates to the contents of this manual. All changes will be discussed among the Parties.
1.4 Legislative Framework
Article 506 of the NAFTA sets out the authority for each Party to the Agreement to conduct
verifications of the books and records of the exporter or producer located in the territory of
another NAFTA Party. The implementing legislation and enabling regulations support the text of
the NAFTA.
For the domestic legislative framework of the other Parties, refer to the respective Annex 1,
Section 1.4 at the end of this Chapter.
The provisions of the NAFTA were adopted by the United States with the enactment of the North
American Free Trade Agreement Implementation Act, Public Law 103-182, 107 Stat. 2057. The
principal role of the U.S. Customs Service is to administer the provisions of the NAFTA and the
Act which relate to the importation of goods into the United States from Canada and Mexico.
Those Customs related NAFTA provisions which require implementation through regulation
include certain tariff and non-tariff provisions within Chapter Three (National Treatment and
Market Access for Goods) and the provisions of Chapter Four (Rules of Origin) and Chapter Five
(Customs Procedures).
The Customs Administration of each Party has consulted in the writing of this manual, and a
similar manual has been developed for their own Customs Administration. It is expected that by
having a similar verification manual for all Customs Administrations there will be a uniform and
consistent application of verification procedures when conducting rule of origin verifications under
the NAFTA.
The majority of the NAFTA implementing regulations are contained in Part 181 of the Customs
Regulations. However, in those cases in which NAFTA implementation is more appropriate in the
context of an existing regulatory provision, the NAFTA regulatory text has been incorporated in an
existing Part within the Customs Regulations. The NAFTA Rules of Origin Regulations are set
forth as an Appendix to Part 181. The text was trilaterally negotiated and is presented as such,
except for editorial modifications necessary and appropriate for the U.S. regulatory context.
The following specific Parts of the Customs Regulations were revised to reflect changes resulting
from the NAFTA:
Part 191- Drawback

ANNEX 1 CANADA
1.4 Legislative Framework
In Canada, Department Memorandum D11-4-20, "Origin Verification Procedures" outlines the
Department's program for verification procedures pursuant to section 42 of the Customs Act, and
Article 506 of the NAFTA, and the Uniform Regulations of the NAFTA.
The Uniform Regulations for Chapters Three and Five of the NAFTA have been agreed to by the
governments of Canada, Mexico and the United States, and for Canada are contained in
Departmental Memorandum D11-4-18, "Uniform Regulations, Chapters Three and Five of
NAFTA". These Uniform Regulations elaborate in detail how NAFTA Parties will interpret, apply
and administer the obligations regarding customs procedures under Chapter Five, and national
treatment and market access under Chapter Three, and are to be read in conjunction with these
Chapters.
The NAFTA Rules of Origin Regulations (regarding the rules of origin under Chapter Four of the
NAFTA) effective from January 1, 1994 to September 30, 1995 are found in Customs Notice N840. The NAFTA Rules of Origin Regulations effective from October 1, 1995 onward are found in
Departmental Memorandum D11-5-1, "NAFTA Rules of Origin Regulations".
ANNEX 1 CANADA
1.4.1 Customs Act
The Customs Act provides the domestic legal framework for administering and enforcing laws
relating to Revenue Canada, Customs and Excise including the Customs Tariff.
The Customs Act, for which the Minister of National Revenue is responsible, creates the authority
for the administration of Customs matters generally and for the Governor-in-Council to make
specific administrative regulations. The collection of Customs duties is based on the principle of
Part 10- Articles Conditionally Free, Subject to a Reduced Rate, etc.

Part 12- Special Classes of Merchandise
Part 24- Customs Financial and Accounting Procedure
Part 123- Customs Relations with Canada and Mexico
Part 134- Country of Origin Marking
Part 162- Record keeping, Inspection, Search, and Seizure
Part 174- Protests
Part 177- Administrative Rulings
Part 178- Approval of Information Collection Requirements
self-assessment and voluntary compliance by the Canadian importer or owner of imported goods
who must report and account for all such goods as required by the Customs Act. The Customs
Act, therefore, provides the mechanism for the collection of duties and taxes imposed on
imported goods by other federal statutes, and for the enforcement of the many federal statutes
that prohibit, regulate or control imported and exported goods.
Section 42 of the Customs Act specifically addresses verifications conducted for the purposes of
determining origin, the statement of origin, the effective date of a re-determination of origin, the
denial or withdrawal of the benefit of the preferential tariff treatment, and advance rulings.
1.4.2 Customs Tariff
ANNEX 1 CANADA
The Customs Tariff is a fiscal statute that:
- imposes customs duties on imported goods;
- provides for the tariff treatment accorded to imported goods depending on their country of origin;
- provides for other conditions (e.g. relating to transshipment) that goods must meet in order to be
entitled to a specific tariff treatment; and
- provides for the tariff rate (rate of customs duty) applicable to goods, depending on the
classification of the goods; and, provides for duty relief.
ANNEX 1 MEXICO
1.4 Legislative framework
Articles 511 and 514 of the NAFTA published in the Official Gazette of the Federation on
December 20, 1994, set out that the Parties shall establish, and implement through their
respective laws the Uniform Regulations regarding the Interpretation, Application and
Administration of Chapter Four of the NAFTA.
Article 506 of the NAFTA, published in the Official Gazette of the Federation on December 20,
1994 and rules 35 trough 66, of Section VII, of Title III of the Uniform Regulations regarding the
Interpretation Application and Administration of Chapter Four of the NAFTA, published in the
Official Gazette of the Federation on December 30, 1994, set out the verification procedures to
conduct origin verifications of goods imported into Mexico for which preferential tariff treatment
was claimed, in order to determine whether such goods qualify as originating as stated in their
certificates of origin. Verifications are mainly conducted by using written questionnaires and
performing verification visits.
In addition to the legal proviso referred to in the previous paragraph, articles 3, and 116 of the
Customs Law and Article 48 of the Fiscal Federal Code and the Interim regulations of the Ministry
of Finance and Public Credit set out that the Direction of International Audit, of the Direction
General of Revenue Policy and International Fiscal Affairs, acting as a Customs Authority, may
request exporters, producers, customs brokers and importers to provide the information regarding
the origin of imported goods for verification purposes.
Through the Customs Tariff Canada gives effect to the International Convention on the
Harmonized Commodity Description and Coding System. It is this Customs Tariff that is used by
Revenue Canada when confirming the classification of goods and materials during the course of
a verification as it is the HS tariff classification of the country into whose territory the good is
imported that is applicable.
The applicable importation duties for importations that received the benefit of the NAFTA
preferential tariff treatment may also be verified by the Direction of International Audit mentioned
before. The applicable importation duties are established in the General Importation Duty Law
(Ley del Impuesto General de Importaci on a most favored nation basis, and such Law is
structured taking into account the guidelines provided for in the Harmonized System. In order to
apply the General Importation Duty Law, it is required to observe the duty phase-out schedules,
published on an annual basis for NAFTA purposes, for originating goods in accordance with the
terms provided for in NAFTA Annex 302.2.
In addition to the legal provisions referred to in the previous paragraph the Direction of
International Audit may verify the country of origin marking in accordance with the terms stated in
Chapter III of the NAFTA and the Decree in which the country of origin marking guidelines were
published on the Official Gazette of the Federation dated January 7, 1994.
The legal provisions above mentioned, provide the legal framework for administering and
enforcing laws for NAFTA purposes, in the case of the Ministry of Finance and Public Credit of
Mexico.

CHAPTER 2 COOPERATION AMONG THE PARTIES
2.1 Exchange of Rulings
Both consultation and the exchange of rulings are required pursuant to paragraph 1, Article 512
of the North American Free Trade Agreement (NAFTA) which states, "Each Party shall notify the
other Parties of the following determinations, measures and rulings, including to the greatest
extent practicable those that are prospective in application:
(a) a determination of origin issued as the result of a verification conducted pursuant to Article
506(1);
(b) determination of origin that the Party is aware is contrary to;
(ii) consistent treatment given by the customs administration of another Party with respect to the
tariff classification or value of a good, or of materials used in the production of a good, or the
reasonable allocation of costs where calculating the net cost of a good, that is the subject of a
determination of origin;
(c) a measure establishing or significantly modifying an administrative policy that is likely to affect
future determinations of origin, country of origin marking requirements or determinations as to
whether a good qualifies as a good of a Party under the Marking Rules; and
(d) an advance ruling, or a ruling modifying or revoking an advance ruling, pursuant to Article
509."
In order to ensure the uniform application of the rules of origin NAFTA meetings are held between
the three Customs Administrations. NAFTA meetings are held at the audit level, Customs Subgroup level, and at the Working Group level. The auditors of each NAFTA Party meet to discuss
issues and then report the results of the discussions to the Customs Sub-group. Refer to Chapter
7-NAFTA Working groups.
It is very important that this process of consultation and exchange of information continue, given
that its primary objective is to ensure the uniform application of the rules of origin.
2.2 Confidentiality of Business Information
NAFTA Article 507, Confidentiality, states:
"1. Each Party shall maintain, in accordance with its law, the confidentiality of confidential
business information collected pursuant to this Chapter and shall protect that information from
disclosure that could prejudice the competitive position of the persons providing the information.
2. The confidential business information collected pursuant to this Chapter may only be disclosed
to those authorities responsible for the administration and enforcement of determinations of
origin, and of customs and revenue matters."
For specific legislation from the other Parties affecting confidentiality of business information,
refer to the respective Annex 2, Section 2.2. at the end of this Chapter.
(i) a ruling issued by the customs administration of another Party with respect to the tariff
classification or value of a good, or of materials used in the production of a good, or the
reasonable allocation of costs where calculating the net cost of a good, that is the subject of a
determination of origin, or
Section 181.121 of the U.S. Customs Regulations reflects the principle of maintenance of
confidentiality of business information set forth in NAFTA Article 507(1); and, Section 181.122
reflects the NAFTA Article 507(2) exception to non-disclosure in the case of disclosures to
governmental authorities for administrative and enforcement purposes.
2.3 Communication
As much as possible, Customs issues under dispute with respect to the NAFTA are resolved
through consultation and discussion between the three administrations. Refer to Chapter 7NAFTA Working groups. Only in instances where no possible grounds for agreement exist
between the Parties would an issue be referred to the Commission - Good Offices, Conciliation
and Mediation, and then possibly to the Arbitral Panel for dispute settlement.
ANNEX 2 CANADA
Sections 107 and 108 of the Customs Act set out the restrictions on the communication of
information and the circumstances under which information obtained under the Act may be
disclosed. Section 160 of the Customs Act sets out the penalties for contravention of sections 107
and 108.
ANNEX 2 MEXICO
2.2 Confidentiality of business information
Articles 507 of the NAFTA, and 69 of the Fiscal Federal Code set out the confidentiality of any
confidential business information gathered during the course of any verification and protect that
information from disclosure that could prejudice the competitive position of the persons providing
the information.
2.2 Confidentiality of Business Information

CHAPTER 3 AUDITING STANDARDS
There is a need for harmonization of the approach for the rules of origin verifications conducted
by all parties to a free trade agreement. Harmonization will provide for consistency in verification
methodology and procedures. All Parties (Mexico, U.S. and Canada), while conducting audits, will
follow Generally Accepted Auditing Standards with specific modifications to make the standards
applicable to North American Free Trade Agreement(NAFTA)legislation/requirements. Section
3.1 sets out how each Party's Customs Administration complies with these standards in
completing verifications for the NAFTA. Section 3.2 outlines each Party's working paper
requirements. (Refer to Chapter 6 for a more detailed description of the verification process.)
3.1 Details of Auditing Standards
All exporter/producer verification visits performed by the Regulatory Audit Division will be
conducted in conformance with Generally Accepted Government Auditing Standards (GAGAS).
These standards are embodied in the publication entitled "Government Auditing Standards"
issued by the Comptroller General of the United States, General Accounting Office (GAO). The
Government Auditing Standards implement the GAO standards for audit of governmental
organizations, programs, activities, and functions. It is based on Generally Accepted Accounting
Principles and Generally Accepted Audit Standards, requiring adherence to auditing standards
covering the auditor's professional qualifications, the quality of audit effort, and the characteristics
of professional and meaningful audit reports. The Government Auditing Standards incorporate
audit standards and procedures adopted by the American Institute of Certified Public Accountants
(AICPA).
The Government Auditing Standards set forth the following basic standards for the Generally
Accepted Government Auditing Standards (GAGAS):
- General standards
- Field Work standards
- Reporting standards
These standards will be applied to all exporter and producer verification visits.
3.1.1 General Standards:
(1) The staff assigned to conduct the audit should collectively possess adequate professional
proficiency for the tasks required.
(2) In all matters relating to the audit work, the audit organization and the individual auditors,
whether government or public, should be free from personal and external impairments to
independence, should be organizationally independent, and should maintain an independent
attitude and appearance.
(3) Due professional care should be used in conducting the audit and in preparing related reports.
For the auditing standards of the other Parties, refer to the respective Annex 3, Section 3.1 at the
end of this Chapter.
(4) Each audit organization conducting audits in accordance with these standards should have an
appropriate internal quality control system in place and undergo an external quality control
review.
3.1.2 Fieldwork Standards
(1) Work is to be adequately planned.
(2) Staff are to be properly supervised.
(3) When laws, regulations, and other compliance requirements are significant to audit objectives,
auditors should design the audit to provide reasonable assurance about compliance with them. In
all performance audits, auditors should be alert to situations or transactions that could be
indicative of illegal acts or abuse.
(5) Sufficient, competent, and relevant evidence is to be obtained to afford a reasonable basis for
the auditors' findings and conclusions. A record of the auditors' work should be retained in the
form of working papers. Working papers should contain sufficient information to enable an
experienced auditor having no previous connection with the audit to ascertain from them the
evidence that supports the auditors' significant conclusions and judgements.
3.1.3 Reporting Standards
(1) Auditors should prepare written audit reports communicating the results of each audit.
(2) Auditors should appropriately issue the reports to make the information available for timely
use by management, legislative officials, and other interested parties.
(3) Auditors should report: audit objectives and the audit scope and methodology; significant audit
findings, and where applicable, auditors' conclusions; recommendations for action to correct
problem areas to improve operations; all significant instances of noncompliance and all significant
instances of abuse that were found during or in connection with the audit; illegal acts should be
reported directly to parties external to the audited entity; scope of work management controls and
any significant weaknesses found; the view of responsible officials of the audited program
concerning auditors' findings, conclusions, and recommendations, as well as corrections planned;
noteworthy accomplishments, particularly when management improvements in one area may be
applicable elsewhere; and, significant issues needing further audit work to the auditors
responsible for planning future audit work.
(4) The report should be complete, accurate, objective, convincing, and as clear and concise as
the subject permits.
(5) Written audit reports are to be submitted by the audit organization to the appropriate officials
of the auditee and to the appropriate officials of the organizations requiring or arranging for the
audits, including external funding organizations, unless legal restrictions prevent it. Copies of the
report should also be sent to other officials who have legal oversight authority or who may be
responsible for acting on audit findings and recommendations and to others authorized to receive
such reports. Unless restricted by law or regulation, copies should be made available for public
inspection.
(4) Auditors should obtain an understanding of management controls that are relevant to the
audit. When management controls are significant to audit objectives, auditors should obtain
sufficient evidence to support their judgement about those controls.
3.2 Audit Working Papers

For the working paper requirements of the other Parties, refer to the respective Annex 3, Section
3.2 at the end of this Chapter.
Working papers are the connecting link between the Regulatory Auditor's verification visit of the
exporter and/or producer and the final report. They provide detailed information in support of the
findings and conclusions set out in the report. In establishing the relationship of working papers to
the audit report, considerable judgement must be exercised, keeping in mind that the objective is
to explain in a clear and concise manner, what was done, what was found, conclusions arrived at,
and recommendations made.
The following SOP RAD1-006-97 dated April 30,1997, provides a complete outline of working
paper requirements of all audits and verifications performed by the Regulatory Audit Division.
ANNEX 3 CANADA
All exporter verifications performed by the Origin Audits Unit are conducted in conformity with
framework for Generally Accepted Auditing Standards (GAAS), modified where applicable in
order to comply with NAFTA requirements.
In Canada, the Canadian Institute of Chartered Accountants (CICA) has set forth the following
basic framework for GAAS:
- General standard (3.1.1)
- Examination standards (3.1.2)
- Reporting standards (3.1.3)
This framework is applied in the following way to on-site exporter or producer origin verifications:
3.1.1 General Standard:
"The examination should be performed and the report prepared by a person or persons
having adequate technical training and proficiency in auditing, with due care and with an
objective state of mind." (1)
The Revenue Canada verification team is usually comprised of the following people:
- Accountants possessing a professional accounting designation or working towards a
professional accounting designation. In Canada, the following accounting designations are
recognized: Chartered Accountant (CA); Certified General Accountant (CGA); and, Certified
Management Accountant (CMA).
- Employees with an appropriate combination of university education and work experience.
- A specialist in the tariff classification of goods.
3.1.2 Examination Standards:
a.) "The work should be adequately planned and properly executed. If assistants are employed
they should be properly supervised."
3.1 Details of Auditing Standards
i) The planning and preparation phase of an exporter/producer verification conducted by the

Origin Audits Unit consists of the following steps:
Identification and Selection of Goods for Verification: A preliminary analysis of the company's
response to a preference criteria B type questionnaire is performed by the Origin Audits Unit to
determine whether the good should be the subject of an on-site origin verification.
Notification (Refer to Article 506 of NAFTA): Once it has been determined that an on-site origin
verification will be conducted, all relevant parties will be notified that an origin verification will be
conducted with respect to the specific goods under review. The relevant parties and reasons for
notification are as follows:
- All known Canadian importers identified by the Origin Audits Unit as importing these products
are notified in writing that the products are under review. For non-automotive goods, should it be
determined that the goods under review do not qualify for a NAFTA Tariff Treatment, the
assessment period generally commences with the date the importers are notified. The
assessment period for automotive goods, where there is an election to average, will be based on
the averaging period. Once the verification is completed, all known importers, including those who
have begun to import from the exporter or producer during the course of the verification, will also
be notified of the verification results.
- The Customs regions across Canada are notified of the origin verification in order to avoid
further questionnaires from being sent during the course of the review. Should importations of the
goods under review occur during the course of the verification, the Customs regions will usually
set the entries aside in anticipation of the verification results.
- Representatives from the U.S. or Mexican Customs Services are notified of the verification visit
to the exporter's or producer's premises.
Initial Planning: The initial planning of the verification involves: (1) reviewing the Certificate of
Origin; (2) analyzing the response(s) to the Questionnaire; (3) the request to the
exporter/producer for further information including a chart of accounts, product literature, bills of
materials, information re: representative models (if applicable), organizational charts and a
complete list of models manufactured and exported to Canada; (4) the collection of other
Customs information from departmental resources, such as the volume and value of importations
affected by the verification; and (5) the gathering of information on the industry sector to identify
the significance of the verification.
Assignment Planning Memorandum: An Assignment Planning Memorandum is developed for
each exporter/producer verification. The purpose of this memorandum is to ensure that the time
spent at the exporter's premises is well coordinated and managed. This planning memorandum
includes topics such as the reasons for verification selection, verification objectives, verification
scope (and use of representative models, if applicable), an overview of the company, verification
concerns, assignment of responsibilities, milestones, conduct of the verification, analysis of the
potential assessment, and a listing of specific references for the verification.
- The exporter or producer will be sent a notice of the Department's intention to conduct a
verification, by certified mail. Written consent must be given by the exporter or producer within 30
days of receipt of the notification. If the written consent is not received by Revenue Canada
officials, a written determination with a notice of intent to deny preferential tariff treatment to the
Canadian importers will be sent to the exporter or producer, allowing them another 30 days in
which to consent before denying preferential tariff treatment.
Contained in the appendices to the Assignment Planning Memorandum are the verification
programs which document the specific procedures to be undertaken in order to reflect the
verification concerns, the complexity of issues and the reliability of the company's record keeping
system. (Refer to Chapter 4, Section 4.2 for Verification Program Objectives; and Chapter 5,
Section 5.5 for the Recommended Verification Procedures.) Depending on the specific
circumstances involved, origin auditors should be prepared to modify the verification procedures
set out in the Assignment Planning Memorandum in accordance with any additional facts that
come to the attention of the auditor during the course of the verification. Amendments to the
verification procedures may be required throughout the verification process. An agenda of topics
to be discussed at the opening interview may also be attached as an appendix.
iii) With respect to the supervision of assistants, the team leader is responsible for the supervision
of the remainder of the team. The team leader then reports to the audit manager for guidance and
advice.
b.) " A sufficient understanding of internal control should be obtained to plan the audit. When
control risk is assessed below maximum, sufficient appropriate audit evidence should be obtained
through tests of controls to support the assessment."
The purpose of the exporter/producer verifications conducted by the Origin Audits Unit are to
ensure that the goods under review qualify as originating in accordance with the NAFTA, and
therefore are primarily transaction-based as opposed to a detailed system-based verification.
Therefore, the verification procedures require a brief evaluation of internal controls documented
on a checklist called Review of Policies, Procedures, and Internal Controls Relative to Accounting
and Management Systems. This evaluation also includes a review of manuals/procedures and
internal/external audit reports, interviews with company officials , reconciliations of the cost
submission made by the exporter/producer to the books and records and a walkthrough of the
accounting system.
c.) "Sufficient appropriate audit evidence should be obtained, by such means as inspection,
observation, enquiry, confirmation, computation and analysis, to afford a reasonable basis to
support the content of the report."
Most evidence is accumulated over the course of the on-site visit during which tests and
procedures are performed, such as interviews with company personnel and external auditors;
walkthroughs of accounting, purchasing and other systems; evaluation of internal controls;
system testing; reconciliation of the cost submissions provided in the response made by the
exporter/producer to our Questionnaire to the General Ledger and other source documents; and
confirmations with suppliers. Examples of documents reviewed during the verification process
include policy and procedures manuals, bill of materials, vendor listings, supplier
correspondence, purchasing reports/records, receiving reports/records, inventory reports/records,
payable reports/records, journal entries, general ledgers and loan agreements.
ii) The execution of the verification refers to the on-site visit to the premises of the
exporter/producer. The on-site visit includes an opening interview with company officials to
explain the objectives of the verification, the execution of the verification procedures, the
preparation of the working papers in accordance with standards set out in section 3.2 of this
chapter and an exit interview with company officials to discuss the findings and their impact on
the NAFTA eligibility of the product(s) shipped to Canada. Depending on the complexity of the
verification and the degree of verification necessary for suppliers, an on-site visit can require two
to ten calendar weeks at the premises of the exporter/producer.
Sufficient and appropriate evidence is gathered using the concepts of materiality and risk. This
means that the auditors design the verification procedures so as not to waste time searching for
immaterial errors that would not affect the final outcome of the verification.
3.1.3 Reporting Standards:
"When engaged to express an opinion on compliance with criteria established by provisions of an
agreement, statute or regulation, the auditor should:
(a) in the introductory paragraph of his or her report:
(i) state that compliance with criteria established by provisions of the agreement, statute or
regulation identified in the report has been audited;
(ii) identify the provisions of the agreement, statute, or regulation;
(iv) when a report on compliance with criteria established by provisions of the agreement, statute
or regulation has been issued in the same circumstances for the preceding period, describe or
refer to disclosure of a change in any significant interpretation of the provisions made by the
management of the entity;
(v) indicate any other information having particular relevance to the party to whom the report is
addressed including the subject of any reservation of opinion on the most recent audited financial
statements;
(vi) state that such compliance is the responsibility of the management of the entity; and
(vii) state that it is the auditor's responsibility to express an opinion on this compliance based on
the audit;
(b) in the scope paragraph of his or her report state that:

(i) the audit was conducted in accordance with generally accepted auditing standards;
(ii) those standards require that the audit be planned and performed to obtain reasonable
assurance whether the entity complied with criteria established by provisions of the agreement,
statute or regulation; and
(iii) such an audit includes:
- examining, on a test basis, evidence supporting compliance;
- evaluating the overall compliance; and
- assessing, where applicable, the accounting principles used and significant estimates made by
the management of the entity;
(c) in the opinion paragraph of his or her report express an opinion whether the entity has
complied, in all material respects, with criteria established by provisions of the agreement, statute
or regulation; and
(iii) describe or refer to disclosure of any significant interpretation of the provisions made by the
management of the entity;
(d) disclose the addressee, the name of the auditor (or firm), the date of the report and the place
of issue."
The reporting phase of the exporter/producer verification conducted by the Origin Audits Unit
involves the organization of the file, the writing of the initial and final written determinations for
presentation to the exporter/producer, and the formal notification to the Canadian importers and
Canada Customs regional offices as to the verification result. Assessments to importers are
currently issued by the Canada Customs regional offices.
The flow and timing of the notifications issued as a result of the verifications are as follows:
After every verification, an initial written determination is issued to the exporter/producer. In
general, the initial written determination is only issued after the file (working papers) and the
written determination have been reviewed for quality control purposes and approved by the Audit
Manager and/or Senior Management.
After 30 days, when all of the further information has been examined (if received), a final written
determination is sent to the exporter/producer.
At the time the final written determination is issued, Revenue Canada will send notifications to
Canadian importers and to Canadian Customs regional offices of whether the goods were found
to be originating or non-originating.
A re-determination of origin made as a result of a verification would be made under section 61(c)
of the Customs Act (section 61(d) of the Customs Act for re-determination of origin where there is
an election to average for an automobile manufacturer). This section of the Act enables Revenue
Canada to re-assess additional duties on specific importations made by the Canadian importers
of the goods that have been found to be non-originating. Therefore, as a result of the goods not
qualifying for preferential tariff treatment, the Canada Customs regional offices will send out reassessments identified in Detailed Adjustment Statements (DAS) invoicing the importers for
duties and taxes owing on the affected entries. As well, for each re-assessment made to an
importer, the exporter will receive a corresponding notice of denial.
3.2 Working Papers
3.2.1 Introduction
Working papers provide, where necessary, detailed information in support of the findings and
conclusions set out in the written determination. In establishing the relationship of working papers
to the written determination, considerable judgment must be exercised, keeping in mind that the
objective is to explain as simply and clearly as possible what was done, what was found,
The initial written determination's purpose is to identify the verification objectives, the scope of the
verification (the period under review is typically a combination of the period for which the
response to the Questionnaire was prepared, and if a significant amount of time has elapsed, the
current fiscal period; the products under review; and the areas focused on during the course of
the review); to formally explain the verification findings to the exporter or producer; and to
conclude our verification as to the eligibility of the product. Article 506(9) of the NAFTA states that
"The Party conducting a verification shall provide the exporter or producer whose good is the
subject of the verification with a written determination of whether the good qualifies as an
originating good, including findings of fact and the legal basis for the determination". If the goods
do not qualify, the written determination will serve as the notice of the intent to deny preferential
tariff treatment to the importers. This notice allows 30 days to the exporter or producer to provide,
in writing, comments or additional information regarding the eligibility of the product.
conclusions arrived at, and recommendations made. Note that working papers or schedules will
mostly be standardized and generated through laptop computers.
The working papers are the property of the Origin Audits Unit. Procedures have been established
which ensure that the custody and confidentiality of the information obtained during the course of
a verification. This information may be disclosed to those authorities responsible for the
administration and enforcement of determinations of origin, and of customs and revenue matters,
within the Administration that conducted the verification.
3.2.2 Purpose
The purpose of working papers are:
a) To provide an explanation of the nature and extent of the verification work performed.
b) To facilitate subsequent discussions with the exporter/producer.
d) To support significant items not requiring change, as set out in the written determination.
e) To cover any special situation that the auditor wishes to put on record such as:
- An explanation of a complex calculation;
- Any difficulty encountered in public relations;
- A problem with facilities provided, etc..
f) To provide evidence in support of fraud or evasion charges.
g) To identify items to be followed up in subsequent verifications.
3.2.3 Use
It is imperative to prepare the working papers in such a manner that they may be understood and
utilized by appropriate parties, namely:
a) Senior officers in resolving problems (i.e. disputed assessment).
b) Officers conducting subsequent verifications.
c) Officers conducting special projects, such as industry surveys, etc.
d) Audit Unit Managers to assist in staff evaluation and identification of training needs.
e) Audit Unit Managers, Internal Audit and Auditor- General's Staff to monitor the quality of
verification work and adherence to departmental standards.
f) Policy and investigations officers to review pertinent information about the exporter/producer.
g) Other departmental officers and the Department of Justice.
c) To support any adjustments made, and aid in the preparation of the assessment.
3.2.4 Format
The format for working papers is as follows:
a) Each set of working papers requires an index. A master index along with a detailed volume
index should be placed in front of each working paper file.
b) Working papers shall be arranged, coded and numbered in the sequence provided in the
index.
c) Working papers shall be prepared using 8?" x 14" size paper or any prescribed form, as
applicable, in order to facilitate the verification, review and report preparation.
3.2.5 Preparation and Disclosure Requirement
The following requirements apply to computer generated and manually prepared working papers:
- the name of the company and the file number;

- the initials of the auditor who prepared the working paper along with the date should be
indicated in the upper right hand corner;
- the page number (in accordance with the index) in the bottom right hand corner;
- the diskette filename in the bottom left hand corner; and
- the objective of the work, a reference to the procedure performed, a description of the content,
the source of information, the methodology and the conclusions reached.
b) Photocopies of existing relevant documentation should be obtained, thus avoiding
unnecessary hand copying. All documents obtained by the auditor should identify the following
information:
- the initials of the auditor along with the date should be indicated in the upper right hand corner;
- the page number (in accordance with the index) in the bottom right hand corner; and
- an indication of the source of the information i.e. prepared by client (PBC) and document name,
along with the company representative's name who provided the document and the date when
the document was received.
c) The information must be presented in an orderly, concise, legible and logical manner, be clear
and understandable and free of clerical errors.
d) Working papers are to be indexed and cross-referenced, as they are prepared using a red pen
or pencil. Using the grandfather, father, son model, cross referencing should take place from
behind the "grandfather" amount or statement, to in front of the "father"; from behind the "father"
to in front of the "son".
e) The file is to be properly organized, with old, irrelevant material stripped from the file.
f) Auditors should confine their use of colored marks to red, as other colors are reserved for the
reviewers. A legend of the audit tick marks should appear in the beginning of the file, section of
the file or at the bottom of each working paper.
a) Each working paper requires the following:
g) The audit tick marks used by the auditor should be discrete neat and legible. They should
never be done on the original documents.
h) All verification procedures used by the auditor must be fully disclosed in the working paper.
i) The verification techniques employed by the auditor must be indicated in the working papers.
j) The content of the working papers must clearly disclose applicable legislation and compliance
therewith.
k) Auditors are to confirm verbal advice, in writing, in order to avoid future misunderstanding, and
note in the working papers information provided to the producer/exporter with respect to the
NAFTA.
l) Working papers often contain confidential information and should be treated accordingly.
3.2.6 Verification Scope and Coverage

The scope of the verification should be indicated on the working papers. The areas covered, the
areas examined in depth and the areas excluded should be supported with reasons and in
accordance with the assignment planning memorandum and the policies.
3.2.7 Standard Forms
The following are standardized forms, which should be completed and used in every verification
file for control purposes:
a) A completed and signed Planning- Revenue Risk Analysis and Importer Notification
Procedures form should be included in the file and is to be done prior to going out on an
verification. The objective of these procedures is to calculate the revenue risk if the goods
exported into Canada are determined to be non-originating under NAFTA and to identify all of the
Canadian importers to be notified about the origin verification.
b) A profile sheet should be completed and placed in front of the file (this document contains the
actual and projected completion dates, costs and time; the re-assessment amount; and the
importers affected by the re-assessment). Where it is not self-evident, the auditor will explain the
reasons for any unusual delay in commencing, completing and submitting the assignment.
c) A verification completion checklist should be placed in front of the file and completed in order to
ensure that a complete file is submitted for review.
d) A completed and signed verification program should be placed in front of the applicable section
of the file.
ANNEX 3 MEXICO
3.1 Generally Accepted Auditing Standards
In Mexico, the Instituto Mexicano de Contadores P?os, A.C. (IMPC) has set forth the following
basic framework for Mexican GAAS:
m) A disk copy of all working papers should be given to the auditor-in-charge when the
verification is complete.
Auditing Standards
Auditing Standards are the minimum quality requirements related to the auditors work with
respect to the general, examination and reporting standards.
General Standards
General Standards refer to the attributes the auditor must possess in order to conduct an audit.
Within these standards, an auditor should have the adequate technical training, skills and
professional proficiency before conducting any audit, and should maintain these standards as
long as the auditor performs his/her professional audit activities.
The auditor is obliged to conduct an audit, and the preparation of the related reports thereof, with
due professional care and professional diligence. In addition, the auditor should be free from any
external impairment to independence in all matters related to the audit work.
General Standards mention that due professional care should be used in conducting an audit and
for the preparation of related reports. In spite the complexity of determining the extent of due
professional care and diligence in every audit, there are certain important elements that must be
followed. These basic elements represent the minimum procedures in order to achieve the audit
objectives.
The examination standards are the basic elements to be observed while conducting audits in
order to comply with the "due care" and "professional diligence" requirements referred to in the
General Standards. The examination standards are the following:
a) An audit must be adequately planned. If assistants are used to conduct the work, they must be
appropriately supervised.
b) An entity's internal control structure must be evaluated to provide the auditor a reasonable
assurance of its effectiveness reliability and to determine the nature, timing, and extent of tests
audit procedures to be performed applied.
c) In conducting audits, by the application of audit procedures, the auditors employ auditing
procedures to must obtain sufficient, competent, and relevant evidence that enables them to
count on will provide a reasonable and objective basis for supporting their opinions.
Reporting Standards
The final result of the auditor?s work is the standard report or opinion. By means of this report, all
interested parties may be informed of the audit findings and the auditor?s opinion. The report
provides reliability on assurance to the entity's financial position and results of operations that are
stated in the financial statements. Moreover, clients and third parties are informed of the results of
the auditor?s work through this report or opinion, and in most cases, the report is the only part of
the audit work that is at their reach.
Every time a public accountant associates his/her name in connection with financial information
or financial statements, the public accountant should clearly determine his relationship with the
such information, his opinion of the latter and if applicable, limitations in the conduction of his
examination, reservations that derive from these limitations and any other audit evidence that
Examination Standards
precludes constrain the auditor from reporting a professional opinion, even though his
examination was conducted in accordance with GASS.
When issuing an opinion related to the financial statements, the auditor must observe the
following:
a) That financial statements were prepared in accordance with generally accepted accounting
principles (GAAP);
b) That GAAP was applied on a consistent basis;
c) That information stated in financial statements and related notes, is adequate and sufficient for
a reasonable interpretation.
Consequently, in the event of any exception to (a),(b) or (c), the auditor must disclose such
deviations and their quantified effect on the financial statements.
The flow and timing of the notifications issued as a result of the verifications are as follows:
After every verification, an initial written determination is issued to the exporter/producer. In
general, the initial written determination is only issued after the file (working papers) and the
written determination have been reviewed for quality control purposes and approved by the
Director of International Audit and the Director of the International Legal Department.
The initial written determination's purpose is to identify the verification objectives, the scope of the
verification to formally explain the verification findings to the exporter or producer; and to
conclude our verification as to the eligibility of the product. Article 506(9) of the NAFTA states that
"The Party conducting a verification shall provide the exporter or producer whose good is the
subject of the verification with a written determination of whether the good qualifies as an
originating good, including findings of fact and the legal basis for the determination". If the goods
do not qualify, the written determination will serve as the notice of the intent to deny preferential
tariff treatment to the importers. This notice allows 30 days to the exporter or producer to provide,
in writing, comments or additional information regarding the eligibility of the product. (Refer to
Appendix N)
After 30 days, when all of the further information has been examined (if received), a final written
determination is sent to the exporter/producer. (Refer to Appendix N)
After the final written determination is notified to the exporter or producer, the Direction of
International Audit will send, pursuant to article 48 of the Fiscal Federal Code, notifications (oficio
de observaciones) to the Mexican importers of the goods subject to verification, of whether the
goods were found to be originating or non-originating. (Refer to Appendix O). This notice allows
15 labor days to the importer to provide, in writing, comments or additional information regarding
the content of the notification.
The reporting phase of the exporter/producer verification conducted by the Customs

Administration involves the organization of the file, the writing of the initial and final written
determinations for presentation to the exporter/producer, and the formal notification to the
Mexican known importers and depending on each case to the Customs regional offices as to the
verification result. Assessments and/or liquidation to importers are currently issued at the Ministry
of Finance and Public Credit Headquarters.
After the 15 labor day period, and depending upon the result of the analysis of the further
information (if received), a liquidation for duties and taxes owing on the affected entries for the
goods that have been found to be non-originating may be notified to the importer of such goods.
3.2. Working Papers
Introduction
Working papers provide, where necessary, detailed information in support of the findings and
conclusions set out in the written determination. In establishing the relationship of working papers
to the written determination, considerable judgment must be exercised, keeping in mind that the
objective is to explain as simply and clearly as possible what was done, what was found,
conclusions arrived at, and recommendations made. Note that working papers or schedules will
mostly be standardized and generated through laptop computers.
Purpose
The purposes of working papers are:
a) To provide an explanation of the nature and extent of the verification work performed.
b) To facilitate subsequent discussions with the exporter/producer.
c) To support any adjustments made, and aid in the preparation of the assessment.
d) To support significant items not requiring change, as set out in the written determination.
e) To cover any special situation that the auditor wishes to put on record such as:
-An explanation of a complex calculation;
-Any difficulty encountered in public relations;
-A problem with facilities provided, etc.
f) To provide evidence in support of customs fraud or customs evasion charges.
g) To identify items to be followed up in subsequent verifications.
Use
It is imperative to prepare the working papers in such a manner that these may be understood
and utilized by appropriate parties, namely:
a) Senior officers in resolving problems (i.e. disputed assessment).
b) Officers conducting subsequent verifications.
The working papers are the property of the Customs Administration. Procedures have been
established which ensure that the custody and confidentiality of the information obtained during
the course of a verification. This information may be disclosed to those authorities responsible for
the administration and enforcement of determinations of origin, and of customs and revenue
matters, within the Customs Administration that conducted the verification.
c) Officers conducting special projects, such an industry surveys, etc.

d) Audit Unit Managers to assist in staff evaluation and identification of training needs.
e) Audit Unit Managers, Internal Audit and Auditor-General's Staff to monitor the quality of
verification work and adherence to departmental standards.
f) Policy, collections and investigations officers to review pertinent information about the
exporter/producer.
g) Other departmental officers within the Customs Administration.
Preparation and Disclosure Requirement
The following requirements apply to computer generated and manually prepared working papers:

- the initials of the auditor who prepared the working paper along with the date should be
indicated
- the page number (in accordance with the index) in the bottom right hand corner;
- the diskette filename
- the objective of the work, a reference to the procedure performed, a description of the content,
the source of information, the methodology and the conclusions reached (sometimes this may
apply to a clearly identifiable group of working papers).
b) Photocopies of existing documentation should be obtained, thus avoiding unnecessary hand
copying. All documents photocopied by the auditor should have an indication of the source of the
information i.e. prepared by client (PBC) or document name. Only relevant photocopies should be
included in the working papers.
c) The information must be presented in an orderly, concise, legible and logical manner, be clear
and understandable and free of clerical errors.
d) Working papers are to be indexed and cross-referenced as they are prepared using a red
pencil.
e) The file is to be properly organized, with old, irrelevant material stripped from the file.
f) The audit tick marks used by the auditor should be discrete neat and legible. They should never
be done on the original documents.
g) All verification procedures used by the auditor must be fully disclosed in the working paper.
h) The verification techniques employed by the auditor must be indicated in the working papers.
i) The content of the working papers must clearly disclose applicable legislation and compliance
therewith.
j) Auditors are to confirm verbal advice, in writing, in order to avoid future misunderstanding.
a) Each working paper requires the following information:
k) Working papers often contain confidential information and should be treated accordingly.
Verification Scope and Coverage
The scope of the verification will be indicated in the notice of intention to conduct an on-site
verification or will be attached to in the letter related to an origin verification questionnaire.
The working papers should include the areas covered, the areas examined in depth and the
areas excluded supported with reasons and in accordance with the assignment planning
memorandum and the policies.
Standard Forms
The following are standardized forms, which should be completed and used in every audit file for
control purposes:
b) A profile sheet should be completed and placed in front of the file (this document contains the
actual and projected completion dates, costs and time; the re-assessment amount; and the
importers affected by the re-assessment). Where it is not self-evident, the auditor will explain the
reasons for any unusual delay in commencing, completing and submitting the assignment. (See
Appendix R).
c) A verification completion checklist should be placed in front of the file and completed in order to
ensure that a complete file is submitted for review.
d) A completed and signed verification program should be placed in front of the applicable section
of the file. (Standard verification programs are found in section 5.5 "Recommended Verification
Procedures". It should be noted that these programs may be modified to better reflect the
concerns of the verification.)
a) A completed and signed Planning-Memorandum analysis and importer notification procedures

form should be included in the file and is to be done prior to going out on a verification. The
objective of these procedures is to calculate the revenue risk if the goods exported into territory
are determined to be non-originating under NAFTA and to identify all of the known importers to be
notified about the exporter/producer origin verification.

CHAPTER 4
OBJECTIVES OF NAFTA AUDITS (VERIFICATIONS)
This chapter explains the overall objective for conducting a North American Free Trade
Agreement (NAFTA) exporter and/or producer verification. The specific verification program
bjectives are also provided.
4.1 Verification Objective
The overall objective of the exporter and/or producer verification is to confirm that the product(s)
certified by the exporter and/or producer qualify as originating in accordance with Chapter 4 of the
NAFTA and the NAFTA Rules of Origin Regulations (the Regulations).
4.2 Objectives of the Verification Programs
OBJECTIVES OF THE VERIFICATION PROGRAMS

A. NON-QUALIFYING OPERATIONS PROGRAM
To ensure that the good does not qualify as originating because of mere dilution with water or
another substance or because of a production or pricing practice designed to circumvent the
Rules of Origin as set out in Chapter 4 of the NAFTA.
B. TARIFF CLASSIFICATION PROGRAM
To ensure that all non-originating materials are sufficiently transformed in the NAFTA territory so
as to undergo the necessary tariff classification change as required by the Specific Rule of Origin
applicable to the exported good and to ensure that the finished good and the non-originating
materials used to produce it are properly classified.
REGIONAL VALUE CONTENT REQUIREMENT
C. TRANSACTION VALUE METHOD - (RVC) - PROGRAM
To ensure that the Regional Value Content requirement, as required by the rules of origin, has
been met where the Transaction Value Method has been used.
D. NET COST METHOD - (RVC) - PROGRAM
To ensure that the Regional Value Content requirement, as required by the rules of origin, has
been met where the Net Cost Method has been used.
E. TRANSSHIPMENT PROGRAM
Verification programs should be developed based on the verification objective stated in Section
4.1, the information gathered, and the concerns identified during the planning and preparation
phase of the audit. Listed below are the specific verification program objectives subject to the
verification process. Chapter 5 contains the verification programs and sub-programs which
identify the recommended verification procedures to be utilized in meeting these objectives.
To verify that the originating good, by reason of having undergone production that satisfies the
requirements of Article 401 of the NAFTA, (1) Is not withdrawn from Customs control outside the
territories of the NAFTA countries and (2) Does not undergo further production or any other
operation outside the territories of the NAFTA countries, other than unloading, reloading, or any
other operation necessary to preserve it in good condition, such as inspection, removal of dust
that accumulates during shipment, ventilation, spreading out or drying, chilling, replacing salt,
sulphur dioxide or other aqueous solutions, replacing damaged packing materials and containers
and removal of units of the good that are spoiled or damaged and present a danger to the
remaining units of the good, or to transport the good to the territory of a NAFTA country.
For additional verification programs from the other Parties, refer to the respective Annex, Section
ANNEX 4 CANADA
4.2 Objectives of the Verification Programs
TO ENSURE THAT THE ORIGINATING GOODS ARE IMPORTED USING THE CORRECT
TARIFF TREATMENT AS SET OUT IN ANNEX 302.2 OF THE NAFTA AND TO ENSURE THAT
NON-ORIGINATING GOODS ARE IMPORTED USING THE CORRECT NON-NAFTA TARIFF
TREATMENT.
F. TARIFF TREATMENT PROGRAM

CHAPTER 5 SCOPE OF NAFTA AUDITS (VERIFICATIONS)
This chapter outlines the extent of the coverage for the exporter and/or producer audits
conducted by the Customs Administrations of each Party. The scope has been defined to include
the verification period, coverage, identification of importers, the assessment/liquidation period and
the use of recommended verification procedures.
5.1 Verification Period
For establishment of the verification periods of the other Parties, refer to the respective Annex 5,
Section 5.1 at the end of this Chapter.
The period subject to audit verification would in most cases be the fiscal year of the
exporter/producer.
5.2 Coverage
For determining the coverage of verifications conducted by the Customs Administrations of the
other Parties, refer to the respective Annex 5, Section 5.2 at the end of this Chapter.
The scope of verifications conducted by Regulatory Audit may include all models of goods
reported on the Certificate of Origin produced by that exporter/producer that are exported to the
U.S. for which preferential tariff treatment is claimed.
5.3 Identification of Importers
For the purposes of identification of importers by the Customs Administrations of the other
Parties, refer to the respective Annex 5, Section 5.3 at the end of this Chapter.
An important function during the initial stages of a verification is the identification and notification
of all known United States importers. The current policy followed by Regulatory Audit is to query
the Automated Commercial System (ACS) using the Manufacturer's Identification Number to
identify U.S. importers. The United States companies who have imported goods from that
exporter/producer are identified and notified in writing that the goods are under review.
5.4 Assessment/Liquidation Period
For purposes of determining the assessment/liquidation period for the other Parties, refer to the
respective Annex 5, Section 5.4 at the end of this Chapter.
Results of a verification will be applied to unliquidated entries.
5.5 Recommended Verification Procedures - Verification Programs
For this period, the goods imported should be matched to the period in which the goods were
produced. In those cases involving a complex production process or where there is a time lapse
between the production and the importation periods, appropriate measures will be taken to
reasonably satisfy this requirement.
Verification teams prepare verification programs based on factors such as the verification
concerns identified during the planning and preparation phase, the complexity of the issues, and
the reliability of the company's record keeping system.
Verification Programs are evolving documents, created during the planning phase and added to
throughout the course of the verification as new concerns are identified or more comprehensive
testing is required, based on the materiality of the costs involved.
This is not to say, however, that there are not procedures in the verification programs that can be
standardized. With this in mind the following verification programs have been prepared,
incorporating procedures used during the exporter and/or producer audits conducted by the
Customs Administration of each Party. These procedures have been found to be useful during
several verifications already conducted. The inclusion of these procedures in a verification
program would of course be dependent on the risks and concerns associated with that particular
situation.
Also note that goods that fall under preference criterion B could be categorized as either nonautomotive goods or automotive goods. The following programs (Chapter 5) contain the
recommended verification procedures that are oriented towards verifying that a non-automotive
good satisfied the rule of origin requirements
The Verification Programs contained in Chapter 5 are as follows:
A. VERIFICATION PROGRAM - NON-QUALIFYING OPERATIONS
B. VERIFICATION PROGRAM - TARIFF CLASSIFICATION VERIFICATION PROGRAMS REGIONAL VALUE CONTENT (RVC):
C. TRANSACTION VALUE METHOD VERIFICATION PROGRAM
Sub-programs 1 through 13
1) Eligibility for the transaction value method

2) General- RVC information
3) Plant tour
4) Review of management of information system
5) Transaction value of the good
6) Originating and non-originating materials
7) Value of materials
8) Intermediate materials
9) Packaging materials and containers for retail sale
10) Packing materials and containers for shipment
11) Accessories, spare parts, and tools
12) Inventory management system
13) Calculation of the regional value content
D. NET COST METHOD VERIFICATION PROGRAM
Sub-programs 1 through 13
1) General- RVC information
2) Plant Tour
Note that the following programs contain procedures that are oriented towards an on-site visit,
verifying goods for which preference criterion B is applicable.
3) Review of management of information system

4) Originating and non-originating materials
5) Value of materials
6) Intermediate materials
7) Net cost calculation
i Total Costs
ii Excluded costs
8) Packaging materials and containers for retail sale
9) Packing materials and containers for shipment
10) Accessories, spare parts and tools
11) Inventory management system
12) Accumulation
13) Calculation of the regional value content
E. VERIFICATION PROGRAM - TRANSSHIPMENT
Appendix L is the verification program which contains the recommended verification procedures
associated with verifying goods claimed to be wholly obtained or produced entirely in the territory
of one or more of the Parties (preference criterion A).
Appendix M is the verification program which contains the recommended verification procedures
associated with verifying goods claimed to be produced entirely in the territory of one or more of
the Parties exclusively from originating materials (preference criterion C).
Appendix N is the verification program which contains the recommended verification procedures
associated with verifying goods claimed to satisfy preference criterion D.
Appendix O is the verification program which contains the recommended verification procedures
to be used in the verification of a light duty automotive good for which the motor vehicle producer
has elected to average.
Appendix P is the verification program which contains the recommended verification procedures
to be used in the verification of a light duty automotive good for which the motor vehicle producer
has not elected to average.
Appendix Q is the verification program which contains the recommended verification procedures
to be used in the verification of a heavy duty automotive good for which the motor vehicle
producer has elected to average.
Appendix R is the verification program which contains the recommended verification procedures
to be used in the verification of a heavy duty automotive good for which the motor vehicle
producer has not elected to average.
Where applicable, the above noted verification programs for automotive goods contain
procedures to verify the applicable regional value content when the provisions concerning new
and refit plants are being used. As well, the programs consider the possibility of the automotive
parts producers deciding to calculate RVC based on averaged costs.
- All of the above verification programs are identical and uniform for all Parties.
For additional verification programs from the other Parties, refer to the respective Annex, Section
VERIFICATION PROGRAM A NON-QUALIFYING OPERATIONS

VERIFICATION OBJECTIVE
TO ENSURE THAT THE GOOD DOES NOT QUALIFY AS ORIGINATING BECAUSE OF MERE
DILUTION WITH WATER OR ANOTHER SUBSTANCE, OR BECAUSE OF A PRODUCTION
OR PRICING PRACTICE DESIGNED TO CIRCUMVENT THE RULES OF ORIGIN AS SET OUT
IN CHAPTER 4 OF THE NAFTA.
VERIFICATION PROCEDURES
Note- A good shall not be considered to be an originating good where:
- there is a "preponderance of evidence" that the object of a production or pricing practice was to
circumvent the Rules of Origin. In regards to unacceptable production practices, circumvention
consists of any alteration or process performed on goods for the purpose of circumventing the
rule of origin requirements. For example, when the processing or assembling performed in the
territory of another Party of the Agreement is reversed or substantially altered after the goods
have been imported and such processing or assembly was not performed for any commercial
purpose other than to qualify the goods for NAFTA tariff treatment, then this will be considered
circumvention.
NON-QUALIFYING PRODUCTION/ASSEMBLY OPERATIONS
1. During the on-site visit, interview company personnel to understand the production/assembly
operations. Are any portions of the production process performed by subcontractors? Are any
portions of the production process performed, in Maquiladora programs or operations, in foreign
trade zones, or in any areas controlled by Customs? Document any concerns with respect to
non-qualifying production/assembly operations.
2. Obtain and review a copy of the bill of materials and any product literature. Document any
concerns with respect to non-qualifying production/assembly operations.
3. Review the section of the PLANT TOUR verification sub-program within the RVC verification
programs, relating to non-qualifying production/assembly operations. Address any concerns
noted with respect to non-qualifying production/assembly operations.
4. Review documents related to transportation. Consider documents obtained in the E.
TRANSSHIPMENT verification program. Document any concerns with respect to the finished
goods being altered subsequent to importation.
5. Relying on the interviews with company personnel, the bill of materials, product literature and
the plant tour, prepare a written evaluation of the non-qualifying production/assembly operation
and assess the evidence gathered. Were there any potential fungible goods?
6. When completing the VALUE OF MATERIALS verification subprogram, within the RVC
verification programs, note any practice that could be construed as a pricing practice that has
- there is a production/assembly operation that consists of mere dilution. For purposes of this
provision, dilution consists of the mixing of a material with water or with any other substance that
does not materially alter the characteristics of the material diluted. No new substance is formed
as a result; or
been implemented by the company for the purpose of circumventing the rule of origin
requirements so that the exported product can qualify as originating.
7. Look for consistency in the pricing practices of the company by comparing the pricing practice
of one period to that of another period within the scope of the verification through sales invoices,
internal pricing practices, etc.
8. Where available review both domestic and foreign price lists of goods sold to unrelated
customers during the same time period. Document any concerns.
9. Look for adjustments to sales at the end of the year and the beginning of the next year. Review
subsequent adjusting journal entries or credit notes that may impact the price of the good.
10. Prepare a written evaluation of the non-qualifying pricing practice and assess the extent of
evidence gathered.
11. Conclude on the results of the verification procedures for Non-qualifying Operations.
VERIFICATION PROGRAM B TARIFF CLASSIFICATION

TO ENSURE THAT ALL NON-ORIGINATING MATERIALS ARE SUFFICIENTLY
TRANSFORMED IN THE NAFTA TERRITORY SO AS TO UNDERGO THE NECESSARY
TARIFF CLASSIFICATION CHANGE AS REQUIRED BY THE SPECIFIC RULE OF ORIGIN
APPLICABLE TO THE EXPORTED GOOD AND TO ENSURE THAT THE FINISHED GOOD
AND THE NON-ORIGINATING MATERIALS USED TO PRODUCE IT ARE PROPERLY
CLASSIFIED.
1. GENERAL PROCEDURES
1. Interview the person(s) responsible for tariff classification to determine how classification was
determined. Inquire about and obtain any classification rulings issued by any Customs
Administration.
2. Determine the responsible individual's knowledge of the tariff, their background in tariff
classification, training, etc.
3. Prior to the on-site visit, and as part of the planning phase of the verification, gather the
information from:
(1) PACKAGING MATERIALS AND CONTAINERS FOR RETAIL SALE verification sub-program;
(2) PACKING MATERIALS AND CONTAINERS FOR SHIPMENT verification sub-program; and,
(3) ACCESSORIES, SPARE PARTS AND TOOLS verification sub-program within the RVC
verification programs to ensure that they are not included when evaluating tariff classification
change requirements.
CONCLUSION
4. Obtain a copy of all Intermediate Material (IM) designations with the corresponding IM's
Harmonized System (HS) Number(s). This information will be used in the INTERMEDIATE
MATERIAL verification subprogram within the RVC verification programs.
5. Document the potential for fungible materials used in the production of the goods and/or any
intermediate materials, while doing the verification procedures in this verification program. (If
fungible materials exist, this information will be used in the verification sub-program INVENTORY
MANAGEMENT SYSTEM within the RVC verification program.)
6. Obtain information from the company pertaining to the de minimis calculations when the
company has applied the de minimis provision to qualify goods.
2. CLASSIFICATION OF THE FINISHED GOOD
Sub-objective:
7. Obtain and review documentation on the good, i.e., bill of materials, owner's manual,
catalogues. public brochures, engineering specifications, etc.
8. Obtain information with respect to the production of the good from the PLANT TOUR
verification sub-program with the RVC verification program to assist in identifying the correct
classification number and rule of origin of the finished good.
9. Physically inspect the good under review and compare with the product literature to aid in
confirming the correct tariff classification. (consider any potential of fungible goods).
10. Ensure that the goods under review is/are properly classified in any RVC information and
Certificate of Origin to the tariff sub-heading level (6th digit) or tariff item level (8th digit)
depending on the detail needed in the specific Rule of Origin. Compare the models of goods
under review to the Certificate of Origin to ensure that any or all models are included in the
automotive parts averaging election, if applicable.
11. Identify the correct rule of origin for the good, taking into account the work performed on the
non-originating and originating materials.
12. Prepare a conclusion of the tariff classification declared by the company for the good under
review.
3. CLASSIFICATION OF INTERMEDIATE MATERIALS
Sub-objective:
Only if the exporter declares intermediate materials, ensure that the correct Tariff Classification in
accordance with the Harmonized System (HS) and applicable rule of origin have been declared
for the intermediate materials used in the production process of the good under verification.
13. Obtain information concerning the transformation processes applicable to intermediate
materials from the PLANT TOUR verification sub-program within the RVC verification programs.
Determine the Tariff Classification in accordance with the Harmonized System (HS) and the Rule
of Origin of the finished good under verification.
14. Ensure that the intermediate materials declared by the company are properly classified to the
tariff sub-heading level (6th digit) or to the tariff item
level (8th digit), depending on the detail needed in the Specific Rule of Origin.
15. Using the tariff classification determined above, identify the specific Rule of Origin for each
intermediate material declared by the company.
16. Ensure that the materials used to produce each intermediate material meet the tariff
classification change required by the Rules of Origin for that intermediate material.
17. Prepare a conclusion on the classification of the declared intermediate material(s) as to
whether they are originating or non-originating. (Refer to the Net Cost RVC verification program
"D", if there is an RVC requirement.)
4. CLASSIFICATION OF ORIGINATING MATERIALS
To determine the tariff classification of originating materials and to assist in other areas of the
verification, specifically the identification of materials that should be the subject of supplier
confirmation letters. Coordinate this review with the ORIGINATING AND NON-ORIGINATING
MATERIALS sub-programs within the RVC verification programs.
18. Obtain an accurate description of the materials using such information as the supplier parts
catalogue, engineering documents, supplier contracts, and by physical examination and classify
the materials on the bill of materials to the tariff sub-heading level (6th digit) or the tariff item level
(8th digit), depending on the detail needed in the specific rule of origin.
19. Note the source of the materials (if such information comes to your attention), using the
information gathered while obtaining the description of the material. This information will be used
in ORIGINATING AND NON-ORIGINATING sub-programs within the RVC verification programs.
20. Identify any materials that would not undergo the required tariff classification change if it was
determined that they were non-originating. Consider these as high risk for confirmation purposes
in the ORIGINATING AND NON-ORIGINATING sub-program within the RVC verification
programs.
21. Using the tariff classification determined above, identify the specific Rule of Origin for the
originating materials selected for confirmation purposes.
5. CLASSIFICATION OF NON-ORIGINATING MATERIALS AND TARIFF CLASSIFICATION
CHANGE RULE OF ORIGIN
Sub-objective:
To verify the tariff classification of the non-originating materials and to determine whether the
required tariff classification change rule has been met.
22. Obtain an accurate description of the non-originating materials using such information as the
supplier parts catalogue, engineering documents, supplier contracts, and physical examination
and verify the tariff classification of the non-originating materials to the tariff sub-heading level
(6th digit) or the tariff item level(8th digit), depending on the detail needed in the specific Rule of
Sub-objective:
Origin. During the verification period check the consistency of the tariff classification numbers for
each imported material used by the company.
NOTE: In accordance with subsection 4(8), self-produced materials may be considered nonoriginating for tariff shift purposes.
23. Ensure that the non-originating materials meet the tariff classification change requirements.
24. Prepare a conclusion on the classification of non-originating materials and whether the nonoriginating materials have met the specific tariff classification change.
VERIFICATION PROGRAM B - TARIFF CLASSIFICATION CONTINUED;
6. DE MINIMIS PROVISION
Sub-objective:
25. Ensure that the de minimis provision is applicable. Is the good identified in subsection 5(4)?
26. Verify that the value of non-originating materials has been calculated in accordance with
subsections 7(1) through (4) of the NAFTA Rules of Origin Regulations. Refer to the VALUE OF
MATERIALS verification sub-program within the RVC verification program.
27. Where a good is subject to an RVC requirement and the de minimis provision outlined in
subsection 5(5) has been applied instead of satisfying that RVC requirement, ensure the de
minimis calculation is performed in accordance with 5(5)(a) of the NAFTA Rules of Origin
Regulations and the good satisfies all other requirements of the Regulations. Where total cost is
being used in the de minimis calculation, ensure it is being calculated in accordance with
subsection 5(10) of the NAFTA
Rules of Origin Regulations.
28. For those non-originating materials that are used in the production of the good and that do not
undergo an applicable change in tariff classification, and
(a) the calculation is performed in accordance with subsection 5(1), verify that the calculation is
correctly performed; or
(b) the calculation is performed in accordance with subsection 5(11), request information (in
writing) regarding how the calculation was performed, the period over which the Value of NonOriginating Materials (VNM) was calculated; and if Schedule X was used which method was
selected. Ensure the calculation has been properly performed.
Where total cost is being used in the de minimis calculation, ensure it is being calculated in
accordance with subsection 5(10) of the NAFTA Rules of Origin Regulations.
29. Prepare a conclusion as to whether the de minimis provision was applicable and performed
correctly.
To verify whether the de minimis provision is applicable and to ensure that the de minimis
calculation has been performed correctly.
VERIFICATION PROGRAM C REGIONAL VALUE CONTENT - TRANSACTION VALUE

METHOD
TO ENSURE THAT THE REGIONAL VALUE CONTENT REQUIREMENT, AS REQUIRED BY
THE RULES OF ORIGIN, HAS BEEN MET WHERE THE TRANSACTION VALUE METHOD
HAS BEEN USED.
1. ELIGIBILITY FOR THE TRANSACTION VALUE METHOD.
Sub-objective:
If one of the following items <(a) to (f)> occurs, then the RVC shall be calculated on the basis of
the Net Cost Method. (Paragraph 402(5) of NAFTA)
a) There is no TV for the good (Refer to Subsection 2(1) of Schedule III of the NAFTA Rules of
Origin Regulations) or where no objective or quantifiable data exists with regard to the additions
required to be made to the price paid or payable under Section 4 of Schedule II of the NAFTA
Rules of Origin Regulations (Refer to Subsection 4(3) of Schedule II of the Uniform Regulations);
b) The TV is unacceptable under Article 1 of the Customs Valuation Code (Refer to Subsection
2(2) of Schedule III of the NAFTA Rules of Origin Regulations) if the following occur:
b) - there are restrictions on the disposition or use of the good by the buyer other than restrictions
which:
(i) are imposed or required by law or by the public authorities in the country of importation;
(ii) limit the geographical area in which the goods may be resold; or
(iii) do not substantially affect the value of the goods;
- The sale or price is subject to a condition or consideration for which a value cannot be
determined with respect to the good;
- Part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will
accrue directly or indirectly to the producer, and an appropriate adjustment cannot be made.
(Paragraph 4 (1)(d) of Schedule II of the NAFTA Rules of Origin Regulations). Review specific
documents such as general ledger, communications with client, correspondence, sales contracts,
etc.;
- The producer and the buyer are related and the relationship between them influenced the price
actually paid or payable; review the minutes of the shareholders board, general ledgers, sales
ledger, chart of accounts, etc.;
To determine if the Transaction Value (TV) method can be applied in determining the Regional
Value Content (RVC) of the good.
c) The good is sold by the producer to a related person and the volume, by units of quantity, of
sales of identical or similar goods, or any combination thereof, to related persons during the 6
months immediately preceding the month in which the good is sold, exceeds 85% of the
producer's total sales to all persons whether or not related and regardless of location, of such
goods during that period. Review the shareholders agreements, equity participation, minutes to
shareholders board meetings, chart of accounts, general ledger, and sales journal;
d) The good is (i) a motor vehicle provided for in headings 87.01 or 87.02, subheading 8703.21
through 8703.90, or heading 87.04, 87.05 or 87.06; (ii) identified in Schedule IV or Schedule V of
the Regulations and is for use in a motor vehicle provided for in headings 87.01 or 87.02,
subheading 8703.21 through 8703.90, or heading 87.04, 87.05 or 87.06; (iii) provided for in
subheading 6401.10 through 6406.10 (certain footwear); or (iv) provided for in tariff item
8469.10.40 (word processing machines);
e) The exporter or producer chooses to accumulate the RVC of the good; or
2. GENERAL - RVC
Sub-objective:
To ensure that the RVC percentage has been calculated correctly for each good subject to
verification.
a) Obtain from company officials RVC information for each good under review;
b) Ensure that all calculations are correct; and that the good has met the RVC requirement based
on these calculations; and
c) Consider whether the de minimis provision applies. Refer to the de minimis provision section in
the B. Tariff Classification verification program.
3. PLANT TOUR
VERIFICATION SUB-OBJECTIVE
To obtain an understanding of the entire operations of the company (i.e. manufacturing,
assembly, warehouse, accounting, etc.).
a) Obtain an Organization Chart. Ensure all operations and or departments whose costs are
included in the total cost calculation for RVC purposes have been reviewed and documented.
--Document the potential for costs to be included in total cost that should be excluded (i.e. costs
not directly related to the production of the good including: sales promotion, marketing and aftersales service costs; royalties; shipping and packing costs; and non-allowable interest costs).
b) Observe and document the existence of the goods under review.
i) Confirm that the good under review is manufactured at that production facility.
f) The good is designated as an intermediate material and is subject to a RVC requirement.
ii) Identify any differences that may exist with respect to the tariff classification of the good under
review.
c) Where the producer designates an intermediate material review the assembly process and
observe the completed intermediate material (IM). Conclude on whether or not the IM is a selfproduced material. This information will be used in 8. INTERMEDIATE MATERIALS
DESIGNATION verification sub-program.
d) Observe and document any concerns with regard to any possible
Non-Qualifying Operations (i.e. unacceptable production or pricing practice used to circumvent
the Rules of Origin) noted during the plant tour.
This information will be used in the Non-Qualifying Operations subprogram.
e) Observe and document the Research and Development and/or Engineering Operations.
f) Observe and document the warehouse operations (i.e. receiving material inventory, storing
material inventory and storing of finished goods).
i) Document any concerns with respect to the tariff classification of materials for which there may
be classification differences.
ii) Document any concerns with respect to the ownership of material.
iii) Document any concerns with respect to the source of materials (i.e. dual sourcing, markings
on materials, fungible materials, etc.) noted during the plant tour.
iv) Document any concerns with respect to the potential for costs being included in the RVC
calculation that are not directly attributable to the goods under review.
v) Document any concerns with respect to the shipping of finished goods (i.e. any costs of
shipping and packing that may be included in the net cost calculation).
vi) Document any concerns with respect to the inventory and turnover of finished goods.
g) Observe and document the production /manufacturing operations. Ensure each inhouse
manufacturing and sub-assembly operations that are incorporated into the good under review
have been documented.
i) Document any concerns with respect to the out-sourcing of manufacturing/production or subassembly operations. Evaluate whether assists may be provided to the out-sourced producers.
ii) Document any concerns with respect to the potential for costs being included in the RVC
calculation that are not directly attributable to the good under review.
This information will be used in 6. VALUE OF MATERIALS verification sub-program.
--Document any concerns with respect to the potential allocation problems of costs not directly
related to the goods included in the averaging calculation.
h) Observe and document the financial accounting operations. Ensure the materials ordering,
receiving, inventory flow, direct labor costing, indirect material costing and overhead allocation
determination are all documented.
i) Observe and document the Management of Information System Operations. Inquire as to the
type of management reports that are produced (i.e. bills of materials, production reports, labor
reports, material stock reports, etc.).
This information will be used in 4. REVIEW OF MANAGEMENT OF INFORMATION SYSTEM
verification sub-program.
4. REVIEW OF THE MANAGEMENT OF INFORMATION SYSTEM
a) Obtain the relevant information concerning the Management of Information System (MIS)
gathered through the 3. PLANT TOUR verification sub-program. Identify the areas of concern
with respect to the MIS.
b) Obtain and review the policies and procedures manual. Identify the areas of concern with
respect to the MIS.
c) Obtain the independent auditor's report. Review this report to assess the reliance the auditors
placed on the MIS.
d) Interview the personnel responsible for the MIS. Assess their knowledge of Electronic Data
Processing (EDP) and the importance the organization places on controls within the MIS.
e) Document the MIS. Use the policies and procedures manual and the interviews with the MIS
personnel as a guide.
i) Document how the Bill of Materials is created within the system. Document how the following
items are entered into the system:
A)engineering documents/specifications (including changes to engineering specifications)
B)list of materials and suppliers - approved vendor listing
C)development of standards for costing purposes (i.e. materials, labor and overhead standards).
ii) Include a review of the following:
A)how are orders for the good under review entered into the system
B)what determines production for the period
C)how are production reports generated
To ensure the Management of Information System (MIS) used to develop the Regional Value
Content calculation is reliable and accurate.
D)how are material stock reports (i.e. KAN-BAN) and picking lists generated
E)inventory (i.e. purchase from supplier(s), receipt, transfer to production, work-in-process,
finished goods, shipment of finished goods)
iii) Document how the actual costs are recorded in the system. Include a review of payments for
materials inventory, direct and indirect labor, manufacturing overhead and all other costs included
in the total cost calculation.
f) Document the controls inherent in the MIS (i.e. the general and application controls). Ensure
adequate controls over materials inventory, production, labor, overhead, etc.
i) General Controls
Review information pertaining to the organization controls and standard operating procedures.
Review the systems development and documentation controls. This includes:
B) programming conventions and procedures;

C) technical, management, user and auditor review and approval;
D) system testing;
E) conversion control (if applicable);
F) program change controls;
G) system documentation standards -- program documentation, operations documentation, user
documentation.
Review the systems software controls. This includes:
A) handling errors;
B) program protection;
C) file protection;
D) security protection.
Document how changes are made (i.e. authorization of changes to the system).
ii) Application Controls
Review the data capture and batch data entry controls. This includes:
A) control methodology (exposures resulting from errors and irregularities, management control
objectives, system objectives, role of controls in EDP systems)
A) systems development methodology;
B) audit trail;
C) data capture controls;
D) data entry controls.
Review the on-line entry, processing and output controls. This includes controls to ensure:
A) reliable, proper, authorized and valid transaction entry;
B) unreliable and improper data entry is detected;
C) unreliable and improper data is corrected;
D) processing is reliable, proper and authorized;
F) unreliable, improper, and unauthorized processing is corrected;

G) errors detected in output are properly corrected and resubmitted to data processing on a
timely basis.
5. TRANSACTION VALUE OF THE GOOD
To ensure that the transaction value of the good is properly calculated, in order to use it in the
determination of the RVC.
Transaction value means the price actually paid or payable for a good adjusted to a F.O.B. (free
on board at the point of direct shipment) basis.
Adjusted to a F.O.B. basis means:
a) Where the following costs are included in the transaction value of the good, deduct:
i) the costs of transporting the good after it is shipped from the point of direct shipment;
ii) the costs of unloading, loading, handling, and insurance that are associated with that
transportation; and,
iii) the cost of packing materials and containers.
b) Where the following costs are not included in the transaction value of the good, add:
i) the costs of transporting the good from the place of production to the point of direct shipment;
ii) the costs of loading, unloading, handling, and insurance that are associated with that
transportation; and,
E) unreliable, improper, and unauthorized processing is detected;
iii) the costs of loading the good for shipment at the point of direct shipment.
(Refer to Sections 2, 3 and 4 of Schedule II and Section 2 of the NAFTA Rules of Origin
Regulations)
a) Determine the price actually paid or payable, determined in accordance with Section 3 of
Schedule II of the NAFTA Rules of Origin Regulations, for the good, by reviewing Customs
Documents supported by commercial invoices, purchase orders, checks, etc.; (Ensure that the
following are not included in the price paid or payable: charges for construction, erection,
assembly, maintenance, or technical assistance related to the good undertaken after the good
has been sold to the buyer; duties and taxes paid in the country in which the buyer is located with
respect to the good; the flow of dividends or other payments from the buyer to the producer that
do not relate to the purchase of the good.) NOTE: costs relating to bring the value of the good to
a F.O.B. basis as defined above should be considered.
(Note that the verification risk for the transaction value of the good is overstatement, therefore a
quick scan of the chart of accounts should be sufficient in order to ensure that the following have
been added, but most of the verification work should be done in order to ensure that the following
costs that have been added have in fact occurred)
(i) commissions and brokerage fees, except buying commissions;
(ii) the costs of transporting the good to the producer's point of direct shipment and the costs of
loading, unloading, handling and insurance that are associated with that transportation;
(iii) the cost of packaging materials and containers in which the goods are packaged for retail sale
which are classified with the good under the Harmonized System;
- the value, reasonably allocated, of the following goods and services where supplied directly or
indirectly to the producer by the buyer free of charge or at a reduced cost for use in connection
with the production and sale of the good:
(i) a material, other than an indirect material, used in the production of the good;
(ii) tools, dies, molds and similar indirect materials used in the production of the good (a tour and
quick scan of the fixed asset records will ensure the existence of the item and its value);
(iii) an indirect material used in the production of the good;
(iv) engineering, development, artwork, design work, and plans and sketches necessary for the
production of the good regardless of where performed;
- the royalties related to the good, other than charges in respect of the right to reproduce the good
in the territory of one or more of the NAFTA countries, that the buyer must pay directly or
indirectly, as a condition of sale of the good;
b) add to the price actually paid or payable for the imported goods the following, to the extent that
they are incurred by the buyer or by a related person on behalf of the buyer and are not included
in the price actually paid or payable for the goods:
- the value of any part of the proceeds of any subsequent resale, disposal or use of the good that
accrues directly or indirectly to the producer.
6. ORIGINATING AND NON-ORIGINATING MATERIALS
To ensure that all originating and non-originating materials have been identified among all
materials used in the production of the good.
6.1 Bill of Materials (BOM)
a) Obtain a copy of the company's RVC calculation for each good under review. Also obtain the
BOM and any additional supporting documentation used by the exporter to prepare the RVC
calculations. Recalculate the values for materials using the BOM and other supporting
documentation and compare to the totals used by the company to calculate the RVC percentage.
b) Consider reviewing the policy and procedures manual for the BOM with respect to the
definition of the BOM, use of the BOM, what is reported on the BOM, who and when changes are
made to the BOM, etc.
c) Obtain from the 10. PACKING MATERIALS AND CONTAINERS FOR SHIPMENT verification
subprogram any packing materials and containers for shipment which should not be included in
the RVC calculation of the finished good. Exclude these materials from further verification work
on the value of the non-originating materials.
d) To ensure that the BOM for the good is complete, compare part numbers, descriptions, and
values with other company documents such as a picking list (used to obtain parts for production
from inventory), engineering specifications (used to determine which materials would be required
for the good), replacement parts listings and service manuals. Obtain explanations from company
officials for any differences and adjust the BOM if required.
e) To ensure that the standard costs for materials on the BOM are consistent throughout the year:
i) review the company's standard costing policies;
ii) inquire of company officials if there have been any changes in the production process, BOM, or
standard costs during the year;
iii) compare the BOM to another (or other) BOM(s) from a different date(s) during the year and
inquire with company officials if any differences are found.
f) If more than one year is under verification, compare the BOM with a BOM of another year to
determine whether there have been any significant changes in part numbers, descriptions or
value of materials from one production year to the other.
Verify that the Bill of Materials (BOM) supplied by the exporter for the good under review includes
all the materials used in the production of the good and identify any changes made throughout
the verification period.
g) Ensure that all verification adjustments required for materials as a result of BOM verification
procedures have been recorded.
h) Conclude as to whether the BOM is complete and consistent throughout the verification period.
6.2 Source of Materials
Ensure that all non-originating materials have been identified among all materials used in the
production of the good.
a) Obtain information from the exporter's policy and procedures manuals and from the 3. PLANT
TOUR verification sub-program to assist in identifying the source of materials used in the
production of the finished good.
b) For each good:
ii) interview company officials to determine who was responsible for this decision and what
procedures they used to verify the origin of the materials. Document strengths and weaknesses
of the manner in which the company gathered information and has assigned origin for
consideration in conducting further tests; iii) determine the responsible individual's understanding
of the NAFTA, training received, knowledge of suppliers, etc.
iv) if the company has received supplier certifications to verify the source of the materials, review
them, compare them to the BOM and determine if the results are adequate for verification
purposes (if not it may be required to confirm these items).
c) Obtain the listing of originating materials that would not undergo the required tariff classification
change if it was determined that they were non-originating from the B. TARIFF CLASSIFICATION
verification program. Confirm the origin of those materials by reviewing supplier
statement/Certifications, purchase orders, invoices and/or receiving documents.
d) Identify any part of the production process that may be sub-contracted and determine the
origin of the resulting product.
e) Obtain a list of suppliers for all materials on the BOM of the good. For suppliers of originating
materials only, perform the following verification procedures:
i) determine whether any of the suppliers have companies in a non-NAFTA country, or if the
suppliers are U.S., Mexican or Canadian distributors (these suppliers will be considered high-risk
items for confirmation purposes);
ii) inquire of company officials to determine whether there were any supplier changes during the
verification period, i.e., for a material, did the company switch to a supplier in the NAFTA territory
from a supplier outside of the NAFTA territory during the verification period (or vice versa); or
from a supplier that was a producer to a supplier that is a distributor;
iii) to determine whether there are any fungible materials examine the parts and supplier lists, the
Approved Vendor List and inquire as to whether the same material is sourced from both a
supplier from a NAFTA country and from one of a non-NAFTA country and if they source parts
from distributors. If fungible materials exist refer to the 12. INVENTORY MANAGEMENT
SYSTEM verification sub-program.
i) determine which materials the exporter has designated as originating;
f) If the exporter does not have supplier statements/Certifications, or they are not considered
adequate for the verification:
i) select a sample of originating (and non-originating materials for value of material purposes)
suppliers for confirmation of the source/value of materials and document the selection criteria.
Factors to be considered when selecting the sample would include:
1) suppliers of originating materials identified as not undergoing a tariff classification change if it
had been sourced from a non-NAFTA country (keeping in mind the possibility of applying the 7%
De Minimis rule) in the B. TARIFF CLASSIFICATION verification program,
2) suppliers of high value originating materials,
3) suppliers who have plants in a non-NAFTA country,
4) suppliers who are U.S., Mexican or Canadian distributors,
6) a judgmental sample of the remaining suppliers;

ii) send out Custom's format supplier confirmations for the selected suppliers (see Appendix I)
and ensure that confirmations are sent out to all suppliers of material if there is more than one
supplier or if suppliers were changed during the period under review;
iii) prepare a working paper to control the confirmation process including the supplier name and
address, material confirmed, date sent, date of receipt of the reply, date of the second follow-up
letter, comments, source per reply, value per reply, etc.;
iv) if no response to the supplier confirmation is received, consider the material to be nonoriginating; and,
v) prepare a written determination pertaining the material for each supplier confirmation sent.
g) Obtain from the B. TARIFF CLASSIFICATION verification program any materials that had
been designated as originating by the exporter were in fact sourced from a non-NAFTA country
i.e., information from supplier catalogues and the 3. PLANT TOUR verification sub-program.
h) Select a sample of originating and non-originating materials and perform the following:
i) scan the purchase invoice, any attached shipping documents, the bank endorsement stamp on
the canceled check and any related credit notes as indicators for support to the exporter's claim
for the source (and value) of the material;
ii) using professional judgement, select materials from this sample to verify markings;
iii) follow up on any contradictory observations.
i) Ensure that all verification adjustments required for materials as a result of sourcing verification
j) Conclude as to whether the sourcing of the materials is correct.
5) a selection for value of materials and
7. VALUE OF MATERIALS
To ensure that the value of non-originating materials have been calculated in accordance with
NAFTA. (For Canada Customs: And ensure that the value of materials obtained from either the
U.S. or Mexico has been correctly calculated in accordance with NAFTA for tariff treatment
purposes.)
Section 7 of the NAFTA Rules of Origin Regulations states that except in the case of indirect
materials, intermediate materials, and packing materials and containers, for purposes of
calculating the RVC of a good, and for the purpose of subsection 5(1) and (5), the value of a
material that is used in the production of the good shall be;
i) the transaction value, determined in accordance with Subsection 2(1) of Schedule VIII, with
respect to the transaction in which the producer acquired the material, or
ii) the value determined in accordance with Sections 6 through 11 of Schedule VIII, where, with
respect to the transaction in which the producer acquired the material, there is no transaction
value under Subsection 2(2) of that Schedule or the transaction value is unacceptable under
Subsection 2(3) of that Schedule, and shall include the following costs (1) to (4) if they are not
included under paragraph (a) or (b):
(1) the costs of freight, insurance and packing and all other costs incurred in transporting the
material to the location of the producer;
(2) duties and taxes paid or payable with respect to the material in the territory of one or more of
the NAFTA countries, other than duties and taxes that are waived, refunded, refundable or
otherwise recoverable, including credit against duty or tax paid or payable;
(3) customs brokerage fees, including the cost of in-house customs brokerage services, incurred
with respect to the material in the territory of one or more of the NAFTA countries;
(4) the cost of waste and spoilage resulting from the use of the material in the production of the
good, minus the value of any reusable scrap or by-product;
Schedule VIII states that in determining the transaction value of a material, the following costs (5
to 9) shall be added to the price paid or payable referred to in (b) above:
(5) commissions, except buying commissions, incurred by the producer;
(6) the costs of containers incurred by the producer which, for customs purposes, are classified
with the material under the Harmonized System;
(a) where the originating or non-originating material is imported by the producer of the good into
the territory of the NAFTA country in which the good is produced, the customs value of the
material with respect to that importation, except where the customs value was not determined in a
manner consistent with Schedule VIII of the NAFTA Rules of Origin Regulations, then the value of
the material shall be determined in accordance with Schedule VIII, with respect to the importation
of that material or
(b) where the originating or non-originating material is acquired by the producer of the good from
another person located in the territory of the NAFTA country in which the good is produced;
(7) the value of the following elements (assists) where they are supplied directly or indirectly to
the seller by the producer free of charge or at a reduced cost for use in connection with the
production and sale of the material:
- a material, other than an indirect material, used in the production of the material being valued
- tools, dies, molds and similar indirect materials used in the production of the material being
valued
- an indirect material (see Subparagraph 5(1)(b)(iii) of Schedule VIII)
- engineering, development, artwork, design work, and plans and sketches performed outside the
territory of the NAFTA country in which the producer is located that are necessary for the
production of the material being valued;
(9) The value of any part of the proceeds of any subsequent disposal or use of the material that
accrues directly or indirectly to the seller.
(Refer to Section 7 and Schedule VIII of the NAFTA Rules of Origin Regulations)
Note that where non-originating materials are the same as one another in all respects, including
physical characteristics, quality and reputation, the value of non-originating materials may, at the
choice of the producer, be determined in accordance with one of the methods set out in Schedule
IX.
a) Review the calculations prepared by the company including any supporting documentation,
and interview company personnel for the purposes of identifying how the value of materials was
calculated. Identify assumptions made by the exporter, all cost types included in the calculations,
allocation procedures, and the accounts from which the information was extracted. How were
price and usage variances accounted for?
b) Determine if the value for materials used by the company to calculate the RVC percentage
match the values included in the BOM and verify that such values are reasonable. Are direct
material costs allocated in accordance with Schedule VII of the Regulations?
c) Assess the internal controls in place to preserve the quality and accuracy of the data available
by reviewing policy and procedures manuals with respect to the purchase of materials, internal
auditor's reports, setting of standards and identification of variances and by performing a walk
through of the purchasing and receiving function and documenting the flow of information by
tracing material requisitioning, ordering, receiving and reporting, returns, accounting, and cash
disbursement.
d) Determine whether there are any related suppliers by:
i) reviewing company documents, (i.e. vendor listing, annual report, organizational charts), and
inquire of company officials
(8) the royalties related to the material, other than charges with respect to the right to reproduce
the material in the territory of the NAFTA country in which the producer is located that the
producer must pay directly or indirectly as a condition of sale of the material, to the extent that
such royalties are not included in the price paid or payable;
ii) determine whether this relationship influenced the cost of materials purchased by examining
purchase contracts, invoices or other documentation and by inquiring of company officials; if
possible compare the exporter's purchase price with the related company to the price paid to
unrelated companies.
iii) if it is determined that the relationship has influenced the price, then the Transaction Value is
unacceptable. One of the alternate methods of valuation must be used, i.e., Transaction Value of
Identical or Similar Materials, or the Deductive, Computed or residual methods. (You may want to
use the "test values" as set out in Schedule VIII Sub-sections 3(4) to 3(7) to ensure that the
Transaction Value is acceptable in instances where there are materials bought between related
parties.)
e) Determine if any of the following occurred, making the transaction value of the material
unacceptable: restrictions on the disposition or use of the material by the producer other than
those imposed by law; that limit the geographical area where the material may be used; or that
does not substantially affect the value of the material.
- Inquire of company officials.

- Obtain from 3. PLANT TOUR verification sub-program, indications of waste and spoilage.
- Inquire of potential value and document the system or method for valuation, if one exists.
Review the system or method used for determining reusable scrap or by-products and ensure
that they are deducted from the price paid for the materials (scan the general ledger for these
accounts and inquire into what they relate to).
- Analyze the material price variances and if these are a result of production waste and spoilage
and assess the impact on the reported value of materials.
- Ensure allocation of waste and spoilage to originating and/or non-originating materials is
reasonable.
g) Identify and examine any assists.
- review purchase contracts and supplier correspondence files
- inquire of company officials
h) Select a sample of both originating and non-originating materials from the RVC information (or
BOM) and document the selection criteria ensuring that high value parts are included in the
sample. Coordinate with the work being done in the 6. ORIGINATING AND NON-ORIGINATING
MATERIALS verification sub-program where there are confirmations and sample work done on
invoices.
- trace to a sample of purchase contracts and invoices to determine the actual price paid by the
exporter/producer; trace to canceled checks, credit or debit notes;
- for non-originating imported materials (and originating imported materials, if applicable), select a
sample of materials to trace to Customs importation documents. Compare the value on these
documents to the value identified in the RVC information and purchase invoices. Document the
f) Identify if there is any waste and spoilage from the use of non-originating materials by doing the
following:
basis on which these materials were valued (i.e. Customs Value, Transaction Value (per
Schedule VIII) etc.) and any concerns.
- calculate the difference between the actual and standard cost and compare with the price
variance or variance from standard claimed by the exporter/producer; follow-up on any
substantial differences;
- trace the total invoice amount to the appropriate ledgers and sub-ledgers to verify that
purchases have been recorded correctly in the exporter's books and records;
- determine that costs incurred in transporting the material to the location of the producer have
been identified and correctly reported. (freight, insurance, packing, etc.). If these costs are
accounted separately from the invoice, you will have to trace these costs to the books and
records and ensure that they are properly allocated to the material.
- determine the existence of in-house customs clerks and verify the correct allocation to the value
of the materials, of the salaries of these clerks, especially in the case of non-originating materials.
NOTE: While doing (h), you should look for indications of improper sourcing, or fungible
materials.
i) Ensure that all verification adjustments required for materials as a result of value of materials
verification procedures have been recorded.
j) Conclude as to whether the value of materials is correct and consistent throughout the
verification period.
8. INTERMEDIATE MATERIALS
The objective of this section of the verification program is to review any self-produced materials
including self produced packaging materials and containers, self produced accessories, spare
parts and tools, designated as an intermediate material by the producer. If intermediate materials
are designated by the company, and are found to qualify, 100% of that value is considered as an
originating material for RVC calculation purposes.
NOTE: For purposes of calculating the RVC of the good, the producer of the good may designate
as an intermediate material any self-produced material that is used in the production of the good,
provided that where an intermediate material is subject to a RVC requirement no other selfproduced material that is subject to a RVC requirement and is incorporated into that designated
self-produced material is also designated by the producer as an intermediate material. Also,
intermediate materials are goods in their own right and must therefore meet the rule of origin
applicable to an intermediate material.
a) Ensure that material costs related to the production of the Intermediate Material are not double
counted as material costs related to the production of the final good.
- determine that duty, taxes, and brokerage fees with respect to the purchase and importing of
materials have been identified and correctly reported, making verification adjustments as required
and identify whether the company actively takes part in a duty drawback program - if so, how has
the duty drawback refund been considered (examine supporting documentation for these costs).
b) Ensure that verification procedures have been completed with respect to:
- verifying the tariff classification of the intermediate materials;
- determining the correct rule of origin;
- ensuring that the non-originating materials used in the production of the intermediate material
have undergon the required tariff classification change. Refer to B. TARIFF CLASSIFICATION
verification program.
c) If the rule of origin contains a RVC requirement, perform a RVC test based on the net cost
method. Complete the D. RVC NET COST METHOD verification program, treating the
intermediate material as a good.
e) Conclude as to whether the Intermediate Material is an originating material.

9. PACKAGING MATERIALS AND CONTAINERS FOR RETAIL SALE
The objective of this section of the verification program is to ensure that packaging materials and
containers in which a good is packaged for retail sale, classified under the HTS with the good that
is packaged therein, are taken into consideration when determining the RVC, but disregarded
when determining whether all the non-originating materials used in production of the good
undergo the applicable change in tariff classification.
a) Identify materials considered to be packaging materials (i.e., decorative boxes for retail sale)
by:
- interviewing company personnel;
- reviewing the bill of materials
b) Do not include these materials in the procedures set out in the B. TARIFF CLASSIFICATION
Include these materials in the procedures set out in the RVC verification programs, specifically
the ORIGINATING AND NONORIGINATING MATERIALS and VALUE OF MATERIALS
verification sub-programs.
10. PACKING MATERIALS AND CONTAINERS FOR SHIPMENT
The objective of this section of the verification program is to identify packing materials and
containers in which the good is packed in order to ensure that they are disregarded when
d) If more than one intermediate material has been identified, ensure that, where the intermediate
material is subject to a regional value-content requirement, no other self-produced material
subject to a regional value content requirement is used in the production of that intermediate
material.
calculating the RVC of the good as well as when determining whether the non-originating
materials used in the production of the good undergo the applicable change in tariff classification.
a) Identify materials considered to be packing materials and containers for shipment purposes by:
- reviewing the bill of materials
b) Ensure that the value for packing materials is not included in the procedures set out in the B.
TARIFF CLASSIFICATION verification program as well as the RVC verification programs,
specifically the ORIGINATING AND NON-ORIGINATING MATERIALS and VALUE OF
MATERIALS verification subprograms.
The objective of this section of the verification program is to ensure that accessories, spare parts
and tools delivered with the good are taken into consideration when determining the RVC of the
good, but disregarded when determining whether all the non-originating materials used in the
production of the good undergo the applicable change in tariff classification.
a) Identify materials considered to be accessories, spare parts and tools
by:
- reviewing the bill of materials;
- reviewing the owner's manual; and
- reviewing sales contracts.
b) Do not include these materials in the procedures set out in the B. TARIFF CLASSIFICATION
Include these materials in the procedures set out in the RVC verification programs, specifically
the ORIGINATING AND NON-ORIGINATING MATERIALS and VALUE OF MATERIALS
12. INVENTORY MANAGEMENT SYSTEM
The objective of this section of the verification program is to determine if an acceptable inventory
management system is in place for fungible materials and/or goods that are commingled as well
as for physically segregated originating and non-originating materials used in the production of
the good to identify the origin of the goods of a specific shipment. If an acceptable inventory
11. ACCESSORIES, SPARE PARTS AND TOOLS
management system does not exist, all the fungible materials must be considered non-originating
for the purposes of the RVC calculation. NOTE: The existence of fungible materials does not
automatically require that this section of the program be used, as the exporter/producer may wish
to treat the fungible material as non-originating or withdraw the certificate of origin for the good
into which the fungible material is incorporated or used.
a) Using the information from the
6. ORIGINATING AND NON-ORIGINATING verification sub-program, obtain a listing of identified
fungible materials.
13. INVENTORY MANAGEMENT SYSTEM.

c) If originating and non-originating fungible materials (goods) exist, determine if the company
used one of the following inventory management systems outlined in the NAFTA Rules of Origin
Regulations - Schedule X to determine the materials originating status:
Specific Identification
FIFO
LIFO
Average Method
d) Document the inventory management system from beginning to end, (i.e., purchasing,
receiving, storage of materials, removal from storage into production of goods, storage of goods
and removal of goods from storage for shipment of goods).
e) If Specific Identification was used, ensure that originating and nonoriginating fungible materials
(goods) were physically segregated, or ensure the existence of an origin identifier, and that
inventory management records are available to substantiate that originating materials (or goods)
were in fact tracked.
f) If FIFO was used, review the company's receipts and withdrawals from the inventory record
system Ensure that the origin of fungible materials (goods) first received was considered to be the
origin of fungible materials (goods) first withdrawn.
g) If LIFO was used, review the company's receipts and withdrawals from the inventory record
system. Ensure that the origin of fungible materials (goods) last received was considered to be
the origin of fungible materials (goods) first withdrawn.
h) If the average method was used, ensure that the company applied the correct materials
averaging ratio provisions (in the case of fungible goods, the ratio is applied to each shipment).
b) If the material is dual sourced and commingled, determine the impact on the origin of the good
should no inventory management system exist - that is if the material is determined to be nonoriginating. Evaluate the impact in terms of the tariff classification change requirement (consider
the use of the de minimus provision) by reviewing the information obtained in the B. TARIFF
CLASSIFICATION verification program, as well as in terms of the RVC requirements, by
reviewing the information obtained in the 7. VALUE OF MATERIALS and the 13. CALCULATION
OF THE RVC PERCENTAGE verification sub-programs if the impact is significant, proceed with
the evaluation of
i) Ensure that whichever method is chosen, including the averaging period in the case of the
averaging method, it was used from the time it was chosen to the end of the fiscal year. Has the
system changed since the inception of NAFTA?
j) Determine that the company correctly identified the origin and/or supplier of materials (goods) in
its opening inventory by:
-Identifying, in the books of the producer, the latest receipts of fungible materials (goods) that add
up to the amount of fungible materials (goods) in opening inventory at the time an inventory
method is chosen. Determine the origin and/or supplier of materials that make up those receipts.
Determine the origin and/or supplier of those fungible materials (goods) to be the origin of the
fungible materials (goods) in opening inventory.
k) Review the inventory management system by performing compliance tests on a sample of
purchase transactions. The sample should include transactions involving materials that were
fungible materials (goods) at the inception of NAFTA and materials (goods) that were identified as
fungible since the inception (i.e. change in supplier)
m) Test a sample of fungible material (goods) inventories by identifying the origin of opening
inventory, adding receipts/adjustments of materials (goods) and deducting
withdrawals/adjustments and compare your result to the company's records. (can test a variety of
periods, materials(goods), and production processes)
n) Conclude on whether the exporter/producer has an acceptable inventory management system
(refer to Schedule X of the NAFTA Rules of Origin Regulations) and how these materials (goods)
should be accounted for in the determination of origin of the good subject to verification.
o) Conclude on the need for an inventory management system and on whether:
1. the inventory management system used by the company meets all the requirements of
Schedule X of the NAFTA Rules of Origin Regulations; or
2. the inventory management system used by the company requires improvement to meet the
requirements of Schedule X of the NAFTA Rules of Origin Regulations - document the impact on
the origin of the goods under review - document the weaknesses of the system; or
3. the inventory management system does not meet the requirements of Schedule X and the
company can/ cannot construct the necessary inventory management system - document the
impact on the origin of the goods under review.
13. CALCULATION OF THE REGIONAL VALUE CONTENT PERCENTAGE
The objective of this final stage of the verification program is to actually calculate the regional
value content percentage.
a) Obtain the value of all non-originating materials from the 7. VALUE OF MATERIALS
verification sub-program and obtain the transaction value of the good from the 5. TRANSACTION
l) Is the inventory management system tested periodically? Obtain a description of periodic

testing and evaluate its effectiveness.
VALUE OF THE GOOD verification sub-program.

b) Subtract the value of all non-originating materials (including packaging, accessories, spare
parts, tools) from the transaction value of the good. and
c) Divide the difference by the transaction value of the good. and
d) Multiply the result by 100
e) Conclude as to whether the good satisfies the NAFTA RVC requirement.
VERIFICATION PROGRAM D REGIONAL VALUE CONTENT - NET COST METHOD

1. GENERAL - RVC
To ensure that the RVC percentage has been calculated correctly for each good.
a) Obtain from company officials RVC information for the good(s) under review; Obtain a written
statement from the company regarding their choice to average. A choice to average must include
the goods averaged and the averaging period in accordance with subsection 2(7) and 6(15) of the
Regulations.
b) Ensure that all calculations are correct and that the good has met the RVC requirement based
on these calculations; and
c) Compare the information contained in the election of average with the RVC information.
d) Ensure the same averaging period has been used for the remainder of the producer's fiscal
year.
1. GENERAL - RVC CONTINUED;
e) If the good is of a provision listed in Schedule IV of the Regulations that is for use as an aftermarket part; or an automotive component assembly or automotive component that is for use as
an after market part; or a sub-component; or a listed material, determine if the company has
elected to average under Section 12 of the Regulations. If an election has been made, using the
information from the B. TARIFF CLASSIFICATION verification program, ensure that all goods of
the same tariff provision are identified and, determine based on the election category, which
should be included in the regional value content calculation. Identify the motor vehicle producer(s)
included in the averaging calculation, and their respective fiscal years. Ensure averaging period is
in accordance with paragraph 12(5)(b) of the Regulations.
TO VERIFY THAT THE REGIONAL VALUE CONTENT REQUIREMENT, AS REQUIRED BY

THE RULES OF ORIGIN, HAS BEEN MET WHERE THE NET COST METHOD HAS BEEN
USED
g) Consider whether the de minimis provision applies. Refer to the DE MINIMIS section of the B.
TARIFF CLASSIFICATION verification program.
2. PLANT TOUR
b) Observe and document the existence of the good under review.

i) Confirm the good under review is manufactured at that production facility.
ii) Identify any differences that may exist with respect to the tariff classification of the good under
review.
d) Observe and document any concerns with regard to any possible Non-Qualifying Operations
(i.e. unacceptable production or pricing practice used to circumvent the Rules of Origin) noted
during the plant tour. This information will be used in the A. NON-QUALIFYING OPERATIONS
related to the production of the goods under review.
on materials, fungible materials, etc.) noted during the plant tour.
iv).Document any concerns with respect to the potential for costs being included in the RVC
not directly related to the production of the good under review including: sales promotion,
marketing and after-sales service costs; royalties; shipping and packing costs; and non-allowable
interest costs).
v).Document any concerns with respect to the shipping of finished goods (i.e. any costs of
vi) Document any concerns with respect to the inventory and turnover of finished goods. g)
Observe and document the production /manufacturing operations. Ensure each in-house
manufacturing and sub-assembly operations have been documented.
i). Document any concerns with respect to the out-sourcing of manufacturing/production or subassembly operations. Evaluate whether assists may be provided to the out-sourced producers.
ii). Document any concerns with respect to the potential for costs being included in the RVC
reports, material stock reports, etc.). This information will be used in 3. REVIEW OF
MANAGEMENT OF INFORMATION SYSTEM verification sub-program.
with respect to the MIS.
respect to the MIS.
placed on the MIS.
A) engineering documents/specifications (including changes to engineering specifications)
B) list of materials and suppliers - approved vendor listing

C) development of standards for costing purposes (i.e. materials, labor and overhead standards)
A) how are orders for the good under review are entered into the system
B) what determines production for the period
C) how are production reports generated
D) how are material stock reports (i.e. KAN-BAN) and picking lists generated E) inventory (i.e.
purchase from supplier(s), receipt, transfer to production, work-in-process, finished goods,
shipment of finished goods)
i) General Controls
3. REVIEW OF THE MANAGEMENT OF INFORMATION SYSTEM CONTINUED;
D) system testing;
documentation.
A)handling errors;
B)program protection;
C)file protection;
D)security protection.
B)audit trail;
C)data capture controls;
D)data entry controls.
3. REVIEW OF THE MANAGEMENT OF INFORMATION SYSTEM CONTINUED;
Done W/P by Ref
4. ORIGINATING AND NON-ORIGINATING MATERIALS

To ensure that all originating and non-originating materials have been identified among all
materials used in the production of the good. (For Canada Customs: and that the originating
materials are correctly identified as obtained from either the U.S. or Mexico for tariff treatment
purposes.)
Bill of Materials
Verify that the Bill of Materials (BOM) supplied by the Exporter/Producer for the good under
review includes all the materials used in the production of the good and identify any changes
made throughout the verification period.
a) Obtain a copy of the completed RVC calculation for each good under review. Also obtain the
BOM and any additional supporting documentation used by the exporter to prepare the RVC
calculations. Recalculate the values for materials using the BOM and other supporting
documentation and compare to the totals used by the company to calculate the RVC. Also
compare the origin of materials indicated on the
BOM and other documentation to the information reported in the RVC. b) Consider reviewing the
policy and procedure manual for the BOM with respect to the definition of the BOM, use of the
BOM, what is reported on the BOM, who and when changes are made to the BOM, etc.
4. ORIGINATING AND NON-ORIGINATING MATERIALS CONTINUED;
c) Obtain from 9. PACKING MATERIALS AND CONTAINERS FOR SHIPMENT verification
program any packing materials and containers for shipment which should not be included in the
RVC
calculation of the finished good. Exclude these materials from further verification work on the
origin and
value of the materials.
NOTE: Ensure that packaging materials and containers for retail sale as identified in 8.
PACKAGING MATERIALS AND CONTAINERS FOR RETAIL SALE verification sub-program,
and 10. ACCESSORIES, SPARE PARTS AND TOOLS verification sub-program are included in
these procedures. Indirect materials are all originating materials.
d) To ensure that the BOM for the good is complete, compare part numbers, quantities (when

timely basis.
average costs are used), descriptions, and values with other company documents such as a
picking list used to obtain parts for production from inventory, engineering specifications used to
determine which materials would be required for the good, replacement parts listings and service
manuals. Obtain explanations from company officials for any differences and adjust the BOM if
required.
e) To ensure that the standard costs for materials on the BOM are consistent throughout the
verification period:
i) review the company's standard costing policies;
ii) inquire of company officials if there have been any changes in the production process, BOM, or
standard costs during the verification period;
iii) compare the BOM to another (or other) BOM(s) from a different date(s) during the verification
period and inquire with company officials if any differences are found.
g) Ensure that all verification adjustments required for materials as a result of BOM verification
h) Conclude as to whether the BOM is complete and consistent throughout the verification period.
Source of Materials:
Ensure that all non-originating materials have been identified among all materials used in the
production of the good.
a) Obtain information from the exporter's policy and procedures manuals and complete a plant
tour to assist in identifying the source of materials used in the production of the finished good.
Refer to the 2. PLANT TOUR verification sub-program to identify concerns noted previously.
b) For each good:
i) determine which materials the exporter has designated as originating;
ii) interview company officials to determine who was responsible for this decision and what
procedures they used to verify the origin of the materials and document strengths and
weaknesses of the manner in which the company gathered information and has assigned origin;
iii) determine the responsible individual's understanding of the NAFTA, training received,
knowledge of suppliers, etc.
iv) If the company has received supplier statements/Certifications to verify the source of the
materials, review them, compare them to the BOM, and determine if they are adequate and
sufficiently identify the materials and the certification period (if they are not adequate, these items
may be considered high risk items for confirmation purposes)
c) Obtain a listing of originating materials that would not undergo the required tariff classification
change if it was determined that they were non-originating from the B. TARIFF CLASSIFICATION
verification program. Confirm the origin of these materials by reviewing supplier
statements/Certifications purchase orders, invoice, and/or receiving documents.
d) Identify any part of the production process that may be sub-contracted and determine the
origin of the resulting product.
f) If more than one year is under review, compare the BOM with a BOM of another year to
determine whether there have been any significant changes in part numbers, descriptions,
sourcing or value of materials from one production year to the other.
e) Obtain a list of suppliers for all materials on the BOM of the good. For suppliers of originating
materials only, perform the following verification procedures:
f) If the Exporter/Producer does not have supplier certifications, or they are not considered
adequate for the verification:
i) Select a sample of originating and non-originating materials for value purposes. Select a
sample of material suppliers for confirmation of the source/value of materials and document the
selection criteria.
Factors to be considered when selecting the sample would include:
1) suppliers of originating materials which have been identified as not undergoing a tariff
classification change if it had been sourced from a non-NAFTA country (keeping in mind the
possibility of applying the 7% De Minimis rule). Refer to the B. TARIFF CLASSIFICATION
2) suppliers of high value originating materials,
3) suppliers who have plants in a non-NAFTA country,
4) suppliers who are U.S., Canadian, or Mexican distributors,
5) a selection for value of materials and
6) a judgmental sample of the remaining suppliers;
ii) Send out the Custom's format supplier confirmations for the selected suppliers (see Appendix
I). Ensure that confirmations are sent out to all suppliers of materials if there is more than one
supplier of a material or if suppliers were changed during the period under review;
iii) prepare a working paper to control the confirmation process including the supplier name and
address, material confirmed, date sent, date of receipt of the reply, date of the second follow-up
letter, comments, source per reply, value per reply, etc.;
iv) prepare a list of suppliers that did not respond to the confirmation, treat materials purchased
from these suppliers as non-originating; and
v) prepare a written determination pertaining to the material for each supplier confirmation sent.
g) Determine whether conclusions documented in the B. TARIFF CLASSIFICATION verification
program include findings that materials that had been designated as originating by the exporter
were in fact sourced from a non-NAFTA country i.e. information from supplier catalogues and the
2. PLANT TOUR verification sub-program.
h) Select a sample of originating and non-originating materials and perform the following:
i) scan the purchase invoice, any attached shipping documents, the bank endorsement stamp on
the canceled check and related credit notes to determine whether they support the exporter's
claim for the source (and value) of the material;
ii) using professional judgment, select materials from this sample to verify markings;
iii) follow up on any contradictory observations.
suppliers are U.S., Canadian or
Mexican distributors (these suppliers will be considered high-risk items for confirmation
purposes);
ii) inquire of company officials to determine whether there were any supplier changes during the
verification period i.e. for a
material did the company switch to a supplier in the NAFTA territory from a supplier outside of the
NAFTA territory during the verification period (or vice versa) or from a supplier that was a
producer to a supplier that is a distributor;
iii) to determine whether there are any fungible materials examine the parts and supplier lists, the
supplier from a NAFTA country and from one of anon-NAFTA country and if they source parts
from distributors. If fungible materials exist this information will be used in the 11. INVENTORY
MANAGEMENT SYSTEM verification sub-program.
i) Ensure that all verification adjustments required for materials as a result of sourcing verification
j) Conclude as to whether the sourcing of the materials is correct.
To ensure that the value of materials has been calculated in accordance with NAFTA.
Section 7 of the NAFTA Rules of Origin Regulations states that except in the case of indirect
materials, intermediate materials, and packing materials and containers, for purposes of
calculating the RVC of a good, and for the purpose of subsection 5(1) and (5), the value of a
material that is used in the production of the good shall be;
(b) where the originating or non-originating material is acquired by the producer of the good from
another person located in the territory of the NAFTA country in which the good is produced,
i) the transaction value, determined in accordance with Subsection 2(1) of Schedule VIII, with
respect to the transaction in which the producer acquired the material, or
ii) the value determined in accordance with Sections 6 through 11 of Schedule VIII, where, with
respect to the transaction in which the producer acquired the material, there is no transaction
value under Subsection 2(2) of that Schedule or the transaction value is unacceptable under
Subsection 2(3) of that Schedule,
(c) and shall include the following costs ( 1 to 4 ) if they are not included under paragraph (a) or
(b):
1) the costs of freight, insurance and packing and all other costs incurred in transporting the
5. VALUE OF MATERIALS CONTINUED;
2) duties and taxes paid or payable with respect to the material in the territory of one or more of
otherwise recoverable, including credit against duty or tax paid or payable;
3) customs brokerage fees, including the cost of in-house customs brokerage services, incurred
with respect to the material in the territory of one or more of the NAFTA countries;
4) the cost of waste and spoilage resulting from the use of the material in the production of the
good, minus the value of any reusable scrap or by-product;
Schedule VIII states that in determining the transaction value of a material, the following costs (5
to 9) shall be added to the price paid or payable refereed to in (b) above.
(a) where the originating or non-originating material is imported by the producer of the good into
the territory of the NAFTA country in which the good is produced, the customs value of the
material with respect to that importation, except where the customs value was not determined in a
manner consistent with Schedule VIII of the NAFTA Rules of Origin Regulations, then the value of
the material shall be determined in accordance with Schedule VIII, with respect to the importation
of that material, or
5) commissions, except buying commissions, incurred by the producer;

6) the costs of containers incurred by the producer which, for customs purposes, are classified
with the material under the Harmonized System;
7) the value of the following elements (assists) where they are supplied directly or indirectly to
the seller by the producer free of charge or at a reduced cost for use in connection with the
production and sale of the material:
- a material, other than an indirect material, used in the production of the material being valued
- tools, dies, molds and similar indirect materials used in the production of the material being
valued
- an indirect material (see Subparagraph 5(1)(b)(iii) of Schedule VIII)
- engineering, development, artwork, design work, and plans and sketches performed outside the
territory of the NAFTA country in which the producer is located that are necessary for the
production of the material being valued;
8) the royalties related to the material, other than charges with respect to the right to reproduce
the material in the territory of the NAFTA country in which the producer is located that the
producer must pay directly or indirectly as a condition of sale of the material, to the extent that
such royalties are not included in the price paid or payable;
9) the value of any part of the proceeds of any subsequent disposal or use of the material that
accrues directly
or indirectly to the seller.
(Refer to section 7 of Schedule VIII of the NAFTA Rules of Origin Regulations and Chapter 4 of
the NAFTA)
Note that where non-originating materials are the same as one another in all respects, including
physical characteristics, quality and reputation, the value of non-originating materials may, at the
choice of the producer, be determined in accordance with one of the methods set out in Schedule
IX.
a) Review the calculations prepared by the company including any supporting documentation,
and interview company personnel for the purposes of identifying how the value of materials was
calculated. Identify assumptions made by the exporter,
all cost types included in the calculations, allocation procedures, and the accounts from which the
information was extracted. How are price and usage variances accounted for?
b) Determine if the value of materials reported by the company in the RVC information and the
BOM is reasonable. Are direct material costs allocated in accordance with Schedule VII of the
Regulations?
c) Assess the internal controls in place to preserve the quality and accuracy of the data available
by reviewing policy and procedures manuals with respect to the purchase of materials, internal
auditor's reports, setting of standards and identification of variances and by performing a walk
through of the purchasing and receiving function and documenting the flow of information by
tracing material requisitioning, ordering, receiving and reporting, returns, accounting, and cash
disbursement.
d) Determine whether there are any related suppliers by:
5. VALUE OF MATERIALS CONTINUED;
i) reviewing company documents, i.e. vendor listing, annual report, organizational charts, and
inquire of company officials;
ii) determine whether this relationship influenced the cost of materials purchased by examining
purchase contracts, invoices or other documentation and by inquiring of company officials; if
possible compare the exporter's purchase price with the related company to the price paid to
unrelated companies.
iii) if it is determined that the relationship has influenced the price, then the Transaction Value is
unacceptable. One of the alternate methods of valuation must be used i.e. Transaction Value of
Identical or Similar materials or the Deductive, computed or residual methods. (You may want to
use the "test values" as set out in Schedule VIII Subsections 3(4) to 3(7) to ensure that the
Transaction Value is acceptable in instances where there are materials bought between related
parties.)
f) Identify if there is any waste and spoilage from the use of non-originating materials by doing the
following:
- Inquire of company officials
- Obtain from the 2. PLANT TOUR verification sub-program indications of waste and spoilage.
- Inquire if there is any value for reusable scrap or by-products and ensure that they are deducted
from the cost (you may want to scan the general ledger to see if any of these accounts exist and
to what they relate to)
- Analyze the material price/usage variances and if these are a result of production waste and
spoilage and assess the impact on the reported value of materials.
- Ensure the allocation of waste and spoilage to originating and non-originating materials is
reasonable.
g) Identify and examine any assists.
- review purchase contracts, supplier correspondence files
- inquire of company officials
h) Select a sample of both originating and non-originating materials from the RVC information (or
BOM) and document the selection criteria ensuring that high value parts are included in the
sample. Coordinate with the work done in 4. ORIGINATING AND NON-ORIGINATING
MATERIALS verification sub-program where there are confirmations and sample work done on
invoices.
- trace to a sample of purchase contracts and invoices to determine the actual price paid by the
exporter /producer trace to canceled checks; and debit/credit notes. For originating and nonoriginating imported materials, select a sample of materials to trace to Customs importation
documents. Compare the value on these documents to the value identified in the RVC
information and purchase invoices. Document the basis on which these materials were valued
(i.e. Customs Value, Transaction Value (per Schedule VIII etc.) and any concerns.
- calculate the difference
between the actual and standard cost and compare with the price variance or variance from
standard claimed by the exporter/producer; follow-up on any substantial differences;
- trace the total invoice amount to the appropriate ledgers and sub-ledgers to verify that
purchases have been recorded correctly in the exporter's/producer's books and records;
- determine that costs incurred in transporting the material to the location of the producer have
been identified and correctly reported (freight, insurance, packing, etc.). If these costs are
accounted separately (i.e. not recorded on the invoice for the material purchase), you will have to
trace these costs to the books and records and ensure that they are properly allocated to the
material;
e) Determine if any of the following occurred, making the Transaction Value of the material
unacceptable: restrictions on the disposition or use of the material by the producer other than
those imposed by law; that limit the geographical area where the material may be used; or that
does not substantially affect the value of the material.
- determine that duty, taxes, and brokerage fees with respect to the purchase and importing of
materials have been identified and correctly reported, making adjustments as required and
identify whether the company actively takes part in a duty drawback program - if so, has the duty
drawback refund been netted against the duty claimed above (examine supporting documentation
for these costs). Determine the existence of in-house customs clerks and verify the correct
allocation to the value of the materials of the salaries of these clerks, especially in the case of
non-originating materials.
NOTE: While doing h), you should look for indications of improper sourcing, or fungible materials.
i) Ensure that all verification adjustments required for materials as a result of value of materials
j) Conclude as to whether the value of materials is correct and consistent throughout the
The objective of this section of the verification program is to review any self-produced materials
including self-produced packaging materials and containers, self-produced accessories, spare
parts and tools, designated as an intermediate material by the producer. If intermediate materials
are designated by the company, and are found to qualify, 100% of that value is considered as an
originating material for RVC calculation purposes.
NOTE: For purposes of calculating the RVC of the good, the producer of the good may designate
as an intermediate material any self-produced material that is used in the production of the good,
provided that where an intermediate material is subject to a RVC requirement no other selfproduced material that is subject to a RVC requirement and is incorporated into that designated
self-produced material is also designated by the producer as an intermediate material. Also
intermediate materials are goods in their own right and therefore the rule of origin applicable to an
intermediate material.
a) Inquire of the company officials as to how the value of the intermediate material was
calculated.
b) Ensure that material, labor, overhead costs etc. related to the Intermediate Material are not
double counted in the respective costs related to the final good.
c) Ensure that the verification procedures have been completed with respect to:
- verifying the tariff classification of the intermediate materials;
- determining the correct rule of origin;
- ensuring that the non-originating materials used in the production of the intermediate material
have undergone the required tariff classification change. Refer to the B. TARIFF
CLASSIFICATION verification program.
d) If the rule of origin contains a RVC requirement perform a RVC test based on the net cost
method. Refer to the D. NET COST METHOD verification program for determining RVC using the
net cost content calculation.
e) If more than one intermediate material has been identified, ensure that, where the intermediate
material is subject to a regional value-content requirement, no other self-produced material
material.
f) Conclude as to whether the Intermediate material is an originating material.

g) If an intermediate material is determined to be originating, calculate the total cost in
accordance with subsection 7(6) and subsections 2(6) through 2(9) of the NAFTA Rules Origin
Regulations. Refer to 7. NET COST CALCULATION verification sub-program of the intermediate
material and carry forward that value, as an originating cost, to the net cost of the good.
7. NET COST CALCULATION
To ensure that the net cost has been determined correctly by using only eligible costs and
reasonable cost allocation methods (where needed). The components needed in order to
calculate the net cost are the total cost and the excluded costs.
Total costs
- profits that are earned by the producer of the good, regardless of whether they are retained or
paid out to other persons as dividends, or taxes paid on those profits, including capital gains
taxes;
- gains related to currency conversion that are related to the production of the good;
(See subsection 6(12) of the NAFTA Rules of Origin Regulations)
- costs of a service provided by a producer of a good to another person where the service is not
related to the good;
- gains and losses resulting from the disposition of a discontinued operation;
- costs relating to the cumulative effect of accounting changes reported in accordance with a
specific requirement of the applicable Generally Accepted Accounting Principles;
- gains or losses resulting from the sale of a capital asset of the producer;
(See Schedule VII of the NAFTA Rules of Origin Regulations)
Note: The value of materials with respect to which production is accumulated, shall be
determined in accordance with section 14 of the NAFTA Rules of Origin Regulations (Refer to 12.
ACCUMULATION verification sub-program).
Total costs
a) Reconcile costs, submitted in the RVC information to the records (general ledger, etc.) of the
company.
b) Ensure by scanning the detail in support of the total cost, the period costs, product costs, and
other costs incurred in the territory of one or more of the Parties are included in the total cost
figure. And ensure that the total costs do not include profits, corporate or personal taxes on
income, dividends, or other accounts that should be classified as assets or reductions to income
accounts, gains related to currency conversion, service costs not related to the good, gains or
losses related to a discontinued operation, costs related to accounting changes, and gains or
losses resulting from the sale of a capital asset.
The total cost of a good consists of all product costs, period costs and other costs, incurred in the
territory of one or more of the NAFTA countries, that are recorded on the books of the producer,
without regard to the location of the persons to whom payments with respect to those costs are
made. But total costs do not include the following:
c) Evaluate the method(s) used to allocate labor and overhead costs to the product under review
and assess whether the methods used are consistent with the recommendations in Schedule VII
of the Uniform Regulations.
Were allocation methods applied throughout the fiscal year?
For purposes of calculating the net cost, the excluded costs:
- shall be the excluded costs that are recorded on the books of the producer of the good;
- that are included in the value of a material that is used in the production of the good shall not be
subtracted from or otherwise excluded from the total cost; and
The excluded costs are: sales promotion, marketing and after-sales service costs; royalties;
shipping and packing costs; and non-allowable interest costs.
The verification objective for this part of the program is to verify that the expenses pertaining to
sales promotion, marketing, and after-sales service costs, royalties, shipping and packing costs
and non-allowable interest costs have all been considered as excluded costs for the purpose of
the calculation of the Net Cost.
The following is the definition of sales promotion, marketing, and after-sales service costs as
defined in the NAFTA Rules of Origin Regulations:
(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, catalogues, 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;
7. NET COST CALCULATION CONTINUED;
(c) salaries and wages, sales commissions, bonuses, benefits(for example, medical, insurance,
pension), traveling and living expenses, membership and professional fees, for sales promotion,
marketing and after-sales service personnel;
(d) recruiting and training of sales promotion, marketing and after-sales service personnel, and
after-sales training of customers' employees, where such costs are identified separately for sales
promotion, marketing and after-sales service of goods on the financial statements or cost
accounts of the producer;
(e) product liability insurance;
(f) office supplies for sales promotion, marketing and after-sales service of goods, where such
costs are identified separately for sales promotion, marketing and after-sales service of goods on
- do not include any amount paid for research and development services performed in the
territory of a NAFTA country (i.e. royalties are excluded costs, but research and development
performed in the Territory is to be included in the total cost calculation).
(See subsection 6(13) of the NAFTA Rules of Origin Regulations)
the financial statements or cost accounts of the producer;

(g) telephone, mail and other communications, where such costs are identified separately for
sales promotion, marketing and after-sales service of goods on the financial statements or cost
accounts of the producer;
(h) rent and depreciation of sales promotion, marketing and after-sales service offices and
distribution centers;
(i) property insurance premiums, taxes, cost of utilities, and repair and maintenance of sales
promotion, marketing and after-sales service offices and distribution centers, where such costs
are identified separately for sales promotion, marketing and after-sales service of goods on the
financial statements or cost accounts of the producer; and
(j) payments by the producer to other persons for warranty repairs.
7. NET COST CALCULATION CONTINUED;
The following is the definition of royalties as defined in Section 2 of

the NAFTA Rules of Origin Regulations:
Royalties means payments of any kind, including payments under technical assistance
agreements or similar agreements, made as consideration for the use of, or right to use, any
copyright, literary, artistic, or scientific work, patent, trade-mark, design, model, plan, secret
formula or process, excluding those payments under technical assistance agreements or similar
agreements that can be related to specific services such as:
a) Personnel training, without regard to where performed; and
b) If performed in the territory of one or more of the Parties, engineering, tooling, die-setting,
software design and similar computer services, or other services.
Excluded costs--shipping and packing costs
The following is the definition of shipping and packing costs as defined in Section 2 of the
NAFTA Rules of Origin Regulations:
Shipping and packing costs means those 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.
Excluded costs--non-allowable interest costs
The following is the definition of non-allowable interest costs as defined
in Section 2 of the NAFTA Rules of Origin Regulations:
Non-allowable interest costs means interest costs incurred by a producer on the producer's debt
obligations that are more than 700 basis points above the yield on debt obligations of comparable
maturities issued by the federal government of the country in which the producer is located.
The methods for calculating non-allowable interest costs are set out in Schedule XI of the
NAFTA Rules of Origin Regulations.
Excluded costs--royalties;
Excluded costs
The following verification procedures are recommended to verify that a proper dollar amount has
been deducted from total costs for sales promotion, marketing, and after sales service costs;
royalties; shipping and packing costs; and non-allowable interest costs. The emphasis on
verification testing should be to ensure that these costs have not been understated by the
company and have been properly allocated to the good under review.
a. Trace the detail of the net cost reported in the RVC calculation to the company's working
schedule. Trace in turn these working schedules to the books and records.
b. Interview company personnel to understand how these costs are accounted for in the
company's books and records. Review the above definitions with company personnel to ensure
that they understand what costs are involved and to document rationale where little or no cost
has been accounted for a particular item provided for in the definition (this is to ensure that there
are no such costs in other accounts).
d. Obtain copies of contracts related to shipping costs. Review the terms of the contracts and
ensure they were properly accounted for in the net cost calculation.
e. Obtain copies of royalty agreements, technical assistance agreements, and other similar
documents. Review the terms of the agreements and ensure that they were properly taken into
account in the net cost calculation. (Remember that research and development performed in the
Territory of a NAFTA country are includable costs)
f. Obtain copies of loan agreements. Review the terms of these agreements, particularly the
interest rates charged, relate them to the products under review and identify loans by type (i.e.
fixed or variable rate). Confirm payments have been made in accordance with the terms of the
loan agreement. Ensure that any non-allowable interest costs have been properly taken into
account in the net cost calculation (refer to Schedule XI of the NAFTA Rules of Origin
Regulations).
g. Refer to the 9. PACKING MATERIALS AND CONTAINERS FOR SHIPMENT verification subprogram to identify any materials that should be included in the net cost of calculation.
h. Review the chart of accounts and the company's trial balance to identify those accounts which
fall within the above definitions and conduct the following tests:
- select a sample of costs and trace to supporting commercial documentation, paying particular
attention to journal voucher type entries; and
- where costs have been allocated for these costs, ensure that the method of allocation is
consistent with that recommended in Schedule VII of the NAFTA Rules of Origin Regulations; and
-where it is determined that these costs should not be included in the net cost, ensure the reveal
is only for the amount originally allocated.
i. Review the chart of accounts and the company's trial balance to identify accounts which appear
to be included costs but that the company has ignored in the Net cost calculation. List these
accounts for further testing to supporting documentation and discussion with company personnel.
j. Prepare a working paper to adjust the net costs figure on the submission of RVC information for
any excluded or not allowable costs are deducted by the producer.
c. Obtain copies of agreements related to sales promotions and marketing. Review the terms of
the agreements and ensure that they were properly accounted for in the net cost calculation.
k. Conclude on the verification sub-objective.

8. PACKAGING MATERIALS AND CONTAINERS FOR RETAIL SALE
VERIFICATION SUB-OBJECTIVE:
The objective of this section of the verification program is to ensure that packaging materials and
containers in which a good is packaged for retail sale, classified under the HTS with the good that
is packaged therein, are taken into consideration when determining the RVC, but disregarded
when determining whether all the non-originating materials used in production of the good
undergo the applicable change in tariff classification.
b) Do not include these materials in the procedures set out in B. TARIFF CLASSIFICATION
c) In the 4. ORIGINATING AND NON-ORIGINATING MATERIALS verification sub-program
determine the origin of these materials.
d) Determine the value of these packaging materials:
i) where the packaging materials are acquired by the producer of the good from another person,
refer to 5. VALUE OF MATERIALS verification sub-program; or
ii) where the packaging materials are produced by the producer of the good, at the choice of the
producer;
- the total cost incurred with respect to all goods produced by the producer of the good, calculated
on the basis of the costs that are recorded on the books of the producer, that can be reasonably
allocated to those packaging materials and containers in accordance with Schedule VII; or
- the aggregate of each cost calculated on the basis of the costs that are recorded on the books
of the producer, that forms part of the total cost incurred with respect to those packaging
materials and containers that can be reasonably allocated to those packaging materials in
accordance with Schedule VII. (Refer to the 7. NET COST CALCULATION verification subprogram.
9. PACKING MATERIALS AND CONTAINERS FOR SHIPMENT

The objective of this section of the verification program is to identify packing materials and
containers in which the good is packed in order to ensure that they are disregarded when
calculating the RVC of the good as well as when determining whether the non-originating
materials used in the production of the good undergo the applicable change in tariff classification.
a) Identify materials considered to be packing materials and containers for shipment purposes by:
- interviewing company personnel; and
- reviewing the bill of materials.
a) Identify materials considered to be packaging materials (i.e. decorative boxes for retail sale) by
interviewing the company personnel and by reviewing the bill of materials.
b) Ensure that the value for packing materials (i.e. the costs that are recorded on the books and
records of the producer) is not included in the B. TARIFF CLASSIFICATION verification program
as well as the 4. ORIGINATING ANDNON-ORIGINATING MATERIALS, 5. VALUE OF
MATERIALS, AND 7. NET COST CALCULATION verification sub-programs.
10. ACCESSORIES, SPARE PARTS AND TOOLS

b) Exclude these materials in the procedures set out in B. TARIFF CLASSIFICATION verification
program.
c) Include the materials in the work done in the 4. ORIGINATING AND NON-ORIGINATING
MATERIALS and 5. VALUE OF MATERIALS verification sub-programs.

The objective of this section of the verification program is to determine if an acceptable inventory
management system is in place for fungible materials and/or goods that are commingled as well
as for physically segregated originating and non-originating materials used in the production of
the good and to identify the origin of goods of a specific shipment. If an acceptable inventory
management system does not exist, all the fungible materials must be considered non-originating
for the purposes of the RVC calculation. NOTE: The existence of fungible materials does not
automatically require that this section of the program be used, as the exporter/producer may wish
to treat the fungible material as non-originating or withdraw the certificate of origin for the good
into which the fungible material is incorporated or used.
a) Using the information from the 4. ORIGINATING AND NON-ORIGINATING MATERIALS
verification sub-program obtain a listing of identified fungible materials.
b) If the material is dual sourced and commingled, determine the impact on the origin of the good
should no inventory management system exist - that is if the material is determined to be nonoriginating, evaluate the impact in terms of the tariff classification change requirement (consider
the use of the de minimis provision) by reviewing the information obtained in the B. TARIFF
CLASSIFICATION verification program as well as in terms of the RVC requirement by reviewing
the information obtained in the 5. VALUE OF MATERIALS and 13. CALCULATION OF THE RVC
PERCENTAGE verification sub-programs. If the impact is significant, proceed with the evaluation
of the Inventory management System.
c) If originating and non-originating fungible materials (goods) exist, determine if the company
The objective of this section of the verification program is to ensure that accessories, spare parts
and tools delivered with the good are taken into consideration when determining the RVC of the
good, but disregarded when determining whether all the non-originating materials used in the
production of the good undergo the applicable change in tariff classification.
Done W/P
by Ref
a) Identify materials considered to be accessories, spare parts and tools by interviewing company
personnel, reviewing the bill of materials, reviewing the owner's manual and by reviewing sales
contracts.
used one of the following inventory management systems outlined in the NAFTA Uniform
Regulations - Schedule X to determine the materials originating status:
FIFO
LIFO
Average Method
d) Document the inventory management system from beginning to end, i.e., purchasing,
receiving, storage of materials, removal from storage into production of goods, storage of goods
and removal of goods from storage for shipment of goods.
e) If Specific Identification was used, ensure that originating and non-originating fungible
materials (goods) were physically segregated, or ensure the existence of an origin identifier, and
that inventory management records are available to substantiate that originating materials (or
goods) were in fact tracked.
system. Ensure that the origin of fungible materials (goods) last received was considered to be
h) If the average method was used, ensure that the company applied the correct materials
averaging ratio provisions (in the case of fungible goods, the ratio is applied to each shipment)
i) Ensure that whichever method was chosen, including the averaging period in the case of the
averaging method, it was used from the time it was chosen to the end of the fiscal year. Has the
system changed since the inception of NAFTA?
j) Determine that the company correctly identified the origin and/or supplier of materials (goods) in
its opening inventory by:
-Identifying, in the books of the producer, the latest receipts of fungible materials (goods) that add
up to the amount of fungible materials (goods) in opening inventory at the time an inventory
method is chosen. Determine the origin and/or supplier of
materials (goods) that make up those receipts. Determine the origin of those fungible materials
(goods) to be the origin of the fungible materials (goods) in opening inventory.
k) Review the inventory management system by performing compliance tests of a sample of
purchase transactions. The sample should include transactions involving materials (goods) that
were fungible materials (goods) at the inception of NAFTA and materials (goods) that were
identified as fungible since the inception (i.e. change in supplier).
testing and evaluate its effectiveness.
m) Test a sample of fungible material (goods) inventories by identifying the origin of opening
inventory, adding receipts /adjustments of materials (goods) and deducting
withdrawals/adjustments and compare your result to the company's records (can test a variety of
periods, materials and production processes).
n) Conclude on whether the exporter /producer has an acceptable inventory management system
(refer to Schedule X of the Uniform Regulations) and how these materials (goods) should be
accounted for in the determination of origin of the good subject to verification.
system. Ensure that the origin of fungible materials (goods) first received was considered to be
o) Conclude on the need for an inventory management system and on whether:

1. the inventory management system used by the company meets all the requirements of
Schedule X of the NAFTA Rules of Origin Regulations; or
2. the inventory management system used by the company requires improvement to meet the
requirements of Schedule X of the NAFTA Rules of Origin Regulations
- document the impact on the origin of the good under review.
-document the weaknesses of the system; or
3. the inventory management system does not meet the requirements of Schedule X and the
company can/cannot construct the
necessary inventory management system - document the impact on the good under review.
12. ACCUMULATION
To ensure that the exporter/producer that chose to accumulate the production of one (or more) of
his suppliers did so in accordance with Section 14 of the NAFTA Rules of Origin Regulations.
General
For purposes of determining whether a good is an originating good, an exporter or producer of a
good may choose to accumulate the production of one or more producers, in the territory of one
or more of the NAFTA countries, of materials that are incorporated into that good so that the
production of the materials shall be considered to have been performed by that exporter or
producer, provided that:
- all non-originating materials used in the production of the good undergo an applicable tariff
classification change, and the good satisfies any applicable RVC requirement, entirely in the
territory of one or more of the Parties; and
- the good satisfies all other rules of origin requirements.
Requirements:
-In order to accumulate the production of a material,
i) where the good is subject to an RVC requirement, the producer of the good must have a
certification as described above that is signed by the producer of the material, and
ii) where an applicable change in tariff classification is applied to determine whether the good is
an originating good, the producer of the good must have a statement signed by the producer of
the material that states the tariff classification of all non-originating materials used by that
producer in the production of that material and that the production of the material took place
entirely in the territory of one or more of the NAFTA countries;
- a producer of a good who chooses to accumulate is not required to accumulate the production
of all materials that are incorporated into the good;
12. ACCUMULATION CONTINUED;
- any information contained in the certification that concerns the value of materials or costs shall
be in the same currency as the currency of the country in which the person who provided the
statement is located.
Statement needed
Non-averaging costs from accumulated production
Where a good is subject to a RVC requirement and an exporter or producer of the good has a
statement signed by a producer of a material that is used in the production of the good that:
a) states the net cost incurred and the value of non-originating materials used by the producer of
the material in the production of that material;
i) the net cost incurred by the producer of the good with respect to the material shall be the net
cost incurred by the producer of the material plus, where not included in the net cost incurred by
the producer of the material the costs referred to in Paragraphs 7(1)(c) through (e) of the NAFTA
Rules of Origin Regulations (i.e. freight, insurance, packing, transport to location of producer,
duties and taxes, customs brokerage fees); and
b) states any amount, other than an amount that includes any of the value of non-originating
materials, that is part of the net cost incurred by the producer of the material in the production of
that material,
i) the net cost incurred by the producer of the good with respect to the material shall be the value
of the material determined in accordance with Subsection 7(1) of the NAFTA Rules of Origin
Regulations (refer to 5. VALUE OF MATERIALS verification sub-program), and
ii) the value of non-originating materials used by the producer of the good with respect to the
material shall be the value of the material, determined in accordance with Subsection 7(1), minus
the amount stated in the statement.
Averaging of Costs from Accumulated Production
Where an exporter or producer of the good does not have a statement provided in (a) or (b)
above, but does have a statement signed by a producer of a material that is used in the
production of the good that:
c) states the sum of the net costs incurred and the sum of the values of non-originating material
used by the producer of the material in the production of that material and identical materials or
similar materials, or any combination thereof, produced in a single plant by the producer of the
material over a month or any consecutive three, six or twelve month period that falls within the
fiscal year of the producer of the good, divided by the number of units of material with respect to
which the statement is made,
i) the net cost incurred by the producer of the good with respect to the material shall be the sum
of the net costs incurred by the producer of the material with respect to that material and the
identical materials or similar materials, divided by the number of units of materials, with respect to
which the statement is made, plus, where not included in the net costs incurred by the producer
of the material, the costs referred to in paragraphs 7(1)(c) through (e) of the NAFTA Rules of
Origin Regulations, and
material shall be the value of non-originating materials used by the producer of the material or
material shall be the sum of the values of non-originating materials used by the producer of the
material with respect to that material and the identical materials or similar materials divided by the
number of units of materials with respect to which the statement is made; or
d) states any amount, other than an amount that includes any of the values of non-originating
materials, that is part of the sum of the net costs incurred by the producer of the material in the
production of that material and identical materials or similar materials, or any combination thereof,
produced in a single plant by the producer of the material over a month or any consecutive three,
six or twelve month period that falls within the fiscal year of the producer of the good, divided by
the number of units of materials with respect to which the statement is made,
i) the net cost incurred by the producer of the good with respect to the materials shall be the value
of the material, determined in accordance with subsection 7(1), (Refer to 5. VALUE OF
MATERIALS verification sub-program) and
a) Determine that only the net cost method has been used to calculate the RVC requirement
where the producer has chosen to use accumulation.
b) Review the information received from the producer, that has accumulated the production, to
ensure that it is mathematically correct and ensure that it has been correctly included in the RVC
calculation.
c) Evaluate the quality of the statements and ensure that they contain all of the required
information as stated above. When accumulated costs are averaged ensure that the statement
includes the periods referred to in subsection 14(3) and verify if it falls within the fiscal year of the
producer of the good.
d) Ensure that the profit component of the material being accumulated is not included in the net
cost information by examining the supplier information and by comparing the price paid by the
producer to the cost information provided by the supplier.
e) Use the applicable verification procedures in the following to evaluate the information received:
B. TARIFF CLASSIFICATION verification program, and 4. ORIGINATING AND NONORIGINATING MATERIALS, 5. VALUE OF MATERIALS, 6. INTERMEDIATE MATERIALS, 7.
NET COST CALCULATION, and 11. INVENTORY MANAGEMENT SYSTEMS verification subprograms.
NOTE: Consideration should be given to the use of supplier confirmations and visits to the
supplier to verify the authenticity of the information reported to the exporter/producer.
13. CALCULATION OF THE REGIONAL VALUE CONTENT PERCENTAGE

The objective of this final stage of the verification program is to actually calculate the regional
value content percentage.
a) Obtain the value of all materials to be included in the net cost of the good and the value of nonoriginating materials identified in the 5. VALUE OF MATERIALS verification sub-program.
material shall be the value of the material, determined in accordance with subsection 7(1), minus
b) Add to the value of all materials to be included in the net cost, the value of other costs from the
7. NET COST CALCULATION verification sub-program to arrive at the net cost of the good.
c) Subtract the value of all non-originating materials (including packaging, accessories, spare
parts, tools) from the net cost of the good.
d) Divide the difference by the net cost of the good. and
e) Multiply the result by 100 and
f) Conclude as to whether the good satisfies the NAFTA RVC requirement.
VERIFICATION PROGRAM E TRANSSHIPMENT

Note: The transshipment rule does not apply to a good of any of HTS subheading numbers
8541.10 through 8541.60 and 8542.11 through 8542.80 where any further production or
other operation that the good undergoes outside the territories of the NAFTA countries
does not result in a change in the tariff classification of the good to a subheading outside
subheading numbers 8541.10 through 8542.90.
VERIFICATION PROGRAM - TRANSSHIPMENT
1. Obtain and review copies of the invoices, bills of lading or waybills for the goods subject to
verification for a sample period. Document the shipping route and all points of shipment and
transshipment prior to the importation of the goods. Determine if the goods have been conveyed
directly from the exporter on a through bill of lading to a consignee. Consider the need to gather
information from the importer.
VERIFICATION PROGRAM - TRANSSHIPMENT CONTINUED;
2. If the goods have not been shipped directly on a through bill of lading, they may be
transshipped to an intermediary country, provided that:
(a) the goods remain under Customs transit control in the intermediary country - obtain copies of
customs control documents to substantiate this;
TO VERIFY THAT THE ORIGINATING GOOD, BY REASON OF HAVING UNDERGONE

PRODUCTION THAT SATISFIES THE REQUIREMENTS OF ARTICLE 401 OF THE NAFTA, (1)
IS NOT WITHDRAWN FROM CUSTOM CONTROL OUTSIDE THE TERRITORIES OF THE
NAFTA COUNTRIES; AND (2) DOES NOT UNDERGO 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, SUCH AS INSPECTION, REMOVAL OF DUST THAT ACCUMULATES
DURING SHIPMENT, VENTILATION, SPREADING OUT OR DRYING, CHILLING, REPLACING
SALT, SULPHUR DIOXIDE OR OTHER AQUEOUS SOLUTIONS, REPLACING DAMAGED
PACKING MATERIALS AND CONTAINERS AND REMOVAL OF UNITS OF THE GOOD THAT
ARE SPOILED OR DAMAGED AND PRESENT A DANGER TO THE REMAINING UNITS OF
THE GOOD, OR TO TRANSPORT THE GOOD TO THE TERRITORY OF THE PARTY.
(b) the goods undergo no operations in the intermediary country other than unloading, reloading,
or operations necessary to preserve the good in good condition such as inspection, removal of
dust that accumulates during shipment, ventilation, spreading out or drying, chilling, replacing
salt, sulphur dioxide or other aqueous solutions, replacing damaged packing materials and
containers and removal of units of the good that are spoiled, or damaged and present a danger to
the remaining units of the good or any operation necessary to transport the good to a NAFTA
country.
(c) In order to substantiate (a) and (b) above request from the importer/exporter:
-Customs receipt and release documents, exporter/producer shipment/production records, serial
numbers of the goods, serial numbers of containers holding the goods, temporary import and
corresponding export documentation, research material explaining the Non-NAFTA customs
operations and procedures.
4. Conclude against the verification objective for transshipment.

ANNEX 5
CANADA
The verification period under review, for verifications conducted by the Origin Audits Unit, is
typically a combination of the period for which the response to the Questionnaire was prepared,
and if a significant amount of time has elapsed, the current fiscal period. Therefore, the goods
produced in this entire period would be the subject of the origin verification.
As such, the goods imported should be matched to the period in which the goods were produced.
In those cases involving complex production processes or where there is a lapse of time between
the production and the importation periods, appropriate measures would be taken to reasonably
satisfy this requirement.
5.2 Coverage
The scope of verifications conducted by the Origin Audits Unit, wherever possible, includes all
models of goods manufactured by that exporter/producer that are exported to Canada and
certified as originating. This often results in the identification of representative models where a
product line is comprised of several, sometimes hundreds of models.
Representativeness
Many of the companies reviewed by the Origin Audits Unit manufacture several, sometimes
hundreds of models of the same basic product. Often, the models are very similar with only a few
minor differences. For example, the primary difference between each model could be the color of
the paint. The concept of representativeness has been developed by the Origin Audits Unit to
reduce on-site verification time by reviewing representative models, rather than all models
manufactured and exported to Canada and certified as originating. The concept of
representativeness involves allowing the exporter/producer to complete one questionnaire for a
specific model within a product line and have that model represent the remaining products in the
3. Determine whether any of the goods shipped were not produced by the producer. Consider the
potential for fungible goods. If fungible goods are found, refer to INVENTORY MANAGEMENT
SYSTEM verification sub-programs within RVC programs. From the transshipment information
requested in procedure 2 of this program consider requesting that the exporter /producer
develop a working paper which shows a reconciliation of shipments of goods exported by the
producer and imported into the territory of the other NAFTA Party taking into account their
quantities and values.
product line. This releases the company from the administrative burden of completing a response
for every model in a product line, and implies that the origin decision for the representative model
will be the decision for the other models in that product line. In order for the Department to
consider a model as representative for a complete product line, the sourcing of materials and the
manufacturing process must be similar to all other models within that line. The onus is on the
company to prove that the selected model should represent the rest of the product line and this
should be done as early in the verification process as possible, preferably in the initial planning
stages of the verification.
Should the results of the verification indicate that the models selected by the company are indeed
representative of their respective lines and that these models qualify as originating in accordance
with the NAFTA and the rules of origin contained therein, all models within those lines will be
considered to qualify. Conversely, if the representative models do not satisfy the rules of origin,
all models within these product lines will not qualify for a NAFTA preferential rate of duty.
5.4 Assessment / Liquidation Period

The assessment period for verifications, other than the auto industry, conducted by the Origin
Audits Unit is based on the date the Canadian importers were first notified that the origin of goods
imported from the exporter/producer is under review. The existing policy has been set by Senior
Management in order to allow the Canadian importer, who has relied in good faith on a Certificate
of Origin provided by the U.S. or Mexican exporter/producer, to prepare for the possibility of being
assessed additional duties and taxes. Therefore, during the planning phase it is necessary to
advise in writing all known importers that the goods are under review. With this in mind, the
verification period for verifications conducted under the NAFTA will include the fiscal year of the
exporter/producer during which the importer has been notified. The assessment period for the
auto industry, where there is an election to average, will be based on the averaging period.
5.5 Recommended Verification Procedures

During the course of a verification, Revenue Canada also conducts procedures directed towards
verifying the applicable tariff treatment in accordance with Annex 302.2 of the NAFTA. The
verification program for tariff treatment is as follows: VERIFICATION PROGRAM - TARIFF
TREATMENT
VERIFICATION OBJECTIVE:
TO ENSURE THAT THE ORIGINATING HAVE BEEN IMPORTED INTO CANADA USING THE
CORRECT TARIFF TREATMENT AS SET OUT IN ANNEX 302.2 OF THE NAFTA AND TO
ENSURE THAT NON-ORIGINATING GOODS ARE IMPORTED USING THE CORRECT NONNAFTA TARIFF TREATMENT.
of all known Canadian importers. The current policy followed by the Origin Audits Unit is that
when a referral for a verification is received, all Canadian companies who have imported goods
from that exporter/producer are identified and notified in writing that the goods are under review.
Once the file has been assigned to a verification team, it is the responsibility of the verification
team to identify and notify all new importers who have begun to import from the exporter/producer
during the course of the verification.
VERIFICATION PROCEDURES:
Originating Goods
1. Before doing the following steps, ensure that the good satisfies its applicable rule of origin (if
not, go to step 6) and:
a) for U.S. goods ensure
i) all tariff classifications for Mexican materials have been determined;
ii) all materials of Mexican origin have been identified while verifying the source of materials;
iii) the value of Mexican materials has been determined while verifying the value of materials; and
iv) where there is subsequent processing in Mexico, the transaction value of the good upon entry
into Mexico or the VFD of the goods when imported into Canada has been determined.
VERIFICATION PROGRAM - TARIFF TREATMENT (CONT)

Originating goods (produced in the U.S.)
2. a) Re-evaluate the origin of the good using its specific rule of origin considering all operations
performed in and materials (note: this includes materials produced through subcontract work)
obtained from Mexico as if they were performed in or obtained from a non-NAFTA country
(removing costs associated with subsequent processing);
and
b) If there is subsequent processing done in Mexico, determine the value and ensure that the
subsequent processing:
i) has not increased the TV of the good by greater than 7%, calculated as:
(TV of goods after processing in Mexico, less the TV of goods prior to processing in Mexico)
divided by
TV of goods prior to processing in Mexico, the quotient to be multiplied by 100, or
ii) does not have a value which exceeds 6.5421% of the VFD of the goods when they are
imported into Canada, calculated as:
the value of processing in Mexico divided by the VFD of goods imported into Canada, the
quotient to be multiplied by 100.
3. Based on the calculations performed in step 2, if
a) the good is still originating and there is no subsequent processing in Mexico then USTT
applies;
b) the good is still originating and the subsequent processing in Mexico is under the limit then
USTT applies;
c) if the good is still originating and the subsequent processing in Mexico is above the limit
i) determine if MT applies following the steps for originating goods in Mexico, if not
ii) MUST applies;
d) the good is non-originating and there is no subsequent processing in Mexico then MUST
applies;
e) the good is non-originating and subsequent processing in Mexico is under the limit then MUST
applies;
f) the good is non-originating and subsequent processing in Mexico is above the limit
i) determine if MT applies following the steps for originating goods in Mexico, if not
VERIFICATION PROGRAM - TARIFF TREATMENT (CONT)

b) for Mexican goods ensure
i) all tariff classifications for U.S. materials have been determined;
ii) all materials of US origin have been determined while verifying the source of materials;
iii) the value of U.S. materials has been determined while verifying the value of materials; and
iv) where there is subsequent processing in the U.S., the transaction value of the good upon entry
into the U.S. or the VFD of the goods when imported into Canada has been determined.
ii) MUST applies.

Originating goods (produced in Mexico)
4 a) For those goods produced in Mexico that meet the NAFTA rules of origin, re-evaluate the
origin of the good using its specific rule of origin considering all operations performed on and
materials obtained from the U.S.(note: this includes materials produced through subcontract
work) as if they were performed in or obtained from a non-NAFTA country (removing any costs
associated with subsequent processing), and
b) if there is subsequent processing done in the U.S. determine the value and ensure that the
subsequent processing:
5. Based on the calculation performed in step 4, if

a) there is no subsequent processing in the U.S., then MT applies;
b) the subsequent processing in the US, is under the limit then MT applies;
c) the subsequent processing in the U.S., is above the limit
i) determine if USTT applies following the steps for originating goods in the U.S., if not
ii) MUST applies;
d) step 4(a) does not apply and there is no subsequent processing in the U.S., then MUST
applies;
e) step 4(a) does not apply and subsequent processing in the U.S., is under the limit then MUST
applies;
f) step 4(a) does not apply and subsequent processing in the U.S., is above the limit
i) determine if USTT applies following the steps for originating goods in the U.S., if not
ii) MUST applies.
Non-Originating Goods
The following steps should be done only when a good does not qualify as an originating good
under the NAFTA rules of origin.
Non-originating goods exported from the United States
6. For non-originating goods exported from the United States, the Most-Favored-Nation tariff
treatment (MFN) is the appropriate tariff treatment. No further verification steps are required
because it is the highest rate of duty that can be paid on these goods.
Non-originating goods exported from Mexico

7. For goods entitled only to the GPT, ensure that the GPT conditions have been met (refer to
step 9 for the conditions)
8. For goods entitled only to the MFN, no further verification work is required.
9. For non-originating goods exported from Mexico that are entitled to both the MFN or the GPT
tariff treatments, choose the lower of the two. If GPT is the tariff chosen, the importer holds the
(i) has not increased the TV of the good by more than 7% calculated as:
(TV of the goods after processing in the U.S., less TV of the goods prior to processing in the U.S.)
divided by the TV of the goods prior to processing in the U.S.,the quotient to be multiplied by 100.
(ii) does not have a value which exceeds 6.5421% of the VFD of the goods when they are
imported into Canada, calculated as:
value of processing in U.S. divided by VFD of goods imported into Canada, the quotient to be
multiplied by 100.
responsibility to substantiate the claim for the GPT treatment. The importer requires proof of
origin and a through bill of lading. Proof of origin can be either the Certificate of Origin Form A or
a statement contained on the commercial invoice or CCI or separately, and must state the
percentage of the ex-factory price which originates in GPT countries (> 60%). Consult the DMemo for the verification of the GPT tariff treatment.
NOTE: If the goods are agricultural, textile and apparel goods, there are special provisions for
these goods which are explained in Memorandum D11-4-19.
10. Conclude on the verification objective.
ANNEX 5 MEXICO
For this period, the goods imported should be matched to the period in which the goods were
produced. In those cases involving complex production processes or where there is a time lapse
between the production and the importation periods, appropriate methods would be taken to
reasonably satisfy this requirement.
5.2 Coverage
The scope of verifications conducted by the DIA, wherever possible, includes all models of goods
manufactured by that exporter/producer that are exported to Mexico and certified as originating.
of all known importers. The current policy followed by the DIA is that when a referral for a
verification is received, all known importers who have imported goods from the exporter or
producer are requested to provide a copy of the certificate of origin issued by the exporter and/or
producer of the imported goods, and copies of all documents related to the importation. Once the
information is analyzed, the file is assigned to a verification team.
5.4Assessment/Liquidation period.
The assessment period for verifications conducted by DIA commences on the date of importation
into Mexico and finalizes on the date in which the duties and taxes owed are paid.
The verification period under review, for verifications conducted by the Direction of International
Audit (DIA), is the period in which the goods imported into Mexico were actually produced. The
scope of the verification will be indicated by DIA in the origin verification questionnaire or in the
intent to conduct a verification visit notification.

CHAPTER 6
METHODOLOGY FOR RULE OF ORIGIN AUDITS (VERIFICATIONS)
This Chapter reviews the verification process. This process has already been briefly described in
Chapter 3, Section 3.1. This Chapter will analyze the process in the context of an overview of the
operation of the verification function within the Customs Administration of the Party conducting
the verification.
The Sections of this Chapter describe the origin verification process, which can be highlighted as
follows (refer to Exhibit A at the end of this Chapter for an overview of the verification process):
For an outline of the verification process for the other parties, refer to the respective Annex 6,
Sections 6.1 through 6.8 at the end of this Chapter.
Due to the implementation of the NAFTA, the U.S. Customs Service has issued several Customs
Directives. These Directives are included here to cover the topics of Chapter 6.
Sections 6.1 through 6.6 will be covered by Customs Directive 3810-08, entitled Notification of
Proposed Verification Visits Under the North American Free Trade Agreement (NAFTA).
Sections 6.7 and 6.8 will be covered by Customs Directive 3810-010, entitled Issuance of Origin
Determinations Under the North American Free Trade Agreement (NAFTA).
SECTIONS 6.1 through 6.6
CUSTOMS DIRECTIVE 3810-08
Notification of Proposed Verification Visit Under the NAFTA
SECTIONS 6.7 and 6.8
CUSTOMS DIRECTIVE 3810-10
Issuance of Origin Determinations Under the NAFTA
ANNEX 6
CANADA
6.1 Types of Verifications
Article 506, paragraph 1 of the NAFTA states that a verification may be conducted solely by
means of: written questionnaires to an exporter or producer in the territory of another Party; visits
to the premises of an exporter or producer in the territory of another Party to review the records
and observe the facilities used in the production of the good; and such other procedure as the
Parties may agree. The Uniform Regulations For The Interpretation, Application, and
6.1 Types of verifications

6.2 Identification and Selection of Goods for Verification
6.3 Notification to Relevant Parties
6.4 Planning
6.5 On-Site Verification
6.6 Analysis of Information and Finalization
6.7 Written Determinations
6.8 Notifications and Reassessment/Liquidation
Administration of Chapters Three (National Treatment and Market Access For Goods) and Five
(Customs Procedures) Of The North American Free Trade Agreement (Chapter 5 Regulations)
state that these other procedures may involve: a verification letter that requests information from
the exporter or producer of the good in the territory of another Party; or any other method of
communication customarily used by the customs administration of the Party in conducting a
verification.
Verifications can be categorized by the preference criterion which is applicable to the good. That
is, there are verifications of: goods identified as wholly obtained or produced in the territory;
goods subject to a tariff change and/or a regional value content requirement; and goods identified
as produced exclusively from originating materials.
At this point, it may be beneficial to draw a distinction between verifications conducted by the
regional offices and verifications conducted by the Origin Audits Unit.
Verifications conducted by the Origin Audits Unit usually involve a regional value content
requirement and/or complex issues such as inventory management systems reviews and tracing
for automotive goods. These verifications involve a detailed examination of all books and records
pertaining to the origin, purchase, costs and value of, and payment for, the goods in question; all
components and materials forming part of the goods in question; the inventory management
control system; and, the process involved in the production of the goods in question to the point
where they are ready for export to the territory of the other Party.
A verification that does not result in a visit to the premises of the exporter or producer is referred
to as a desk review. There exists a verification program which contains the recommended
procedures for a desk review conducted by the Origin Audits Unit of a good subject to preference
criteria B.
The remainder of the Canadian sections in this chapter focuses on the methodology used by the
Origin Audits Unit when conducting verifications at the premises of the exporter or producer.
6.2 Identification and Selection of Goods for Verification:
Since, as explained in section 6.1, both the Regional Offices and the Origin Audits Unit initiate
and conduct verifications, the identification and selection for verification would vary according to
preference criteria being claimed. Reasons for selection include an obviously incorrect origin
criteria identified on the Certificate of Origin, complex products with complex rules of origin, and
products considered risky in terms of satisfying the rules of origin. As well, the Origin Audits Unit
also responds to referrals for a thorough on-site verification of books and records, and often, in
this situation preliminary verification work has already been completed. This is elaborated on
below.
However, when a company is initially selected for verification, origin questionnaires are used to
assist Canada Customs in collecting the information required to verify that a good qualifies for the
preferential tariff treatment. General questionnaires are currently being developed, however,
specific questionnaires exist for the following criteria:
Verifications conducted by the regional offices usually involve cases where the goods are
identified as goods wholly obtained or produced in the territory of one or more of Parties, where
the goods are produced entirely from originating materials in the territory of one or more of the
Parties, or where the claimed origin criterion applicable to the goods only involves a tariff change
requirement, as outlined in Schedule 1 of the Rules of Origin Regulations. When these
verifications require an on-site visit, the regional officer may observe the manufacturing or
assembling process and review the relevant books and records to ascertain the origin of the
materials used in the production of the goods and to gather other information required to
determine the origin of the goods.
- Goods Wholly Obtained or Produced Entirely in the Territory of One or More of the Parties;
- Goods Produced Entirely in the Territory of One or More of the Parties Exclusively From
Originating Materials;
- Tariff Change;
- Regional Value Content - Transaction Value Method; and
- Regional Value Content - Net Cost Method.
These questionnaires are sent to the exporter or producer following the procedures set out in the
Chapter 5 Regulations, who is then asked to complete and return it to the Department. Based on
a review of all of the information received, the officer will make a decision as to whether the
product does or does not satisfy the rules of origin or whether a more in-depth review is required.
Subsequent to a good being identified and a questionnaire being sent out by the Department a
preliminary risk analysis of the company's response to a questionnaire is performed by the Origin
Audits Unit to determine whether the good should be the subject of an on-site origin verification.
For those situations in which an on-site origin verification is considered to be necessary, priorities
are set to determine which verifications should be done first. The following criteria are relied upon
to set the on-site verification priority:
i. an industry complaint;
ii. revenue risk to the Department;
iii. interest expressed by Senior Management;
iv. outstanding B2 refund claims attached to the request for verification from a regional office;
v. availability of resources (auditors), including matching the more experienced auditor with the
more complex assignment;
vi. compliance history by companies to Customs requirements;
vii. difficulties/complexities of the company/industry affected by verification;
viii. length of time a referral has been awaiting verification action, and
ix. other factors (such as providing guidance to field officers).
Currently, industry complaints are given first priority due to the sensitivity usually involved and the
level of responsiveness that is expected. Other verifications are ranked according to ii., iii., iv.,
and v. above. Factors vi. and vii. will impact on the ranking but to date have not significantly
affected the priorities.
6.3 Notification to Relevant Parties
Once it has been determined that a particular exporter/producer will be subject to an on-site origin
verification, all relevant parties are identified and notified that an origin verification will be
conducted with respect to the specific goods under review. The parties subject to notification are
as follows:
i. Exporter/Producer:
The exporter/producer is initially contacted by telephone to arrange for an on-site visit and to
ensure co-operation with regard to access to the relevant records, a guided plant tour upon the
verification team's arrival and the availability of company officials to meet the auditors' requests
during the course of the verification.
The Origin Audits Unit receives referrals for verifications initiated by the regional offices in those
situations where the rule of origin includes a Regional Value Content requirement, and there is a
high risk associated with the case (such as a marginal Regional value content percentage). Other
sources of referrals, on a less frequent basis, are industry complaints from Canadian companies
questioning whether their competitors are entitled to the NAFTA preferential rates of duty; tariff
analysis of high volume; high risk importation; and referrals from the Intelligence Section of the
Enforcement Directorate questioning entitlement based on their separate analysis.
The exporter or producer will be sent a notice of the Department's intention to conduct a
verification, by certified mail. Written consent must be given by the exporter or producer within 30
days of receipt of the notification. If the written consent is not received by Revenue Canada
officials, a written determination with a notice of intent to deny preferential tariff treatment to the
Canadian importers will be sent to the exporter or producer, allowing the exporter or producer 30
days in which to provide consent for a verification to the Department before denying preferential
tariff treatment.
ii. Importers:
iii. Regional Customs Offices

The regional offices are informed of the upcoming review of certain products produced by the
exporter/producer in an attempt to avoid further questionnaires from being sent to the
exporter/producer during the course of the verification. Regional offices are provided with a
complete commodity description which includes a description of the product and the tariff
classification of the product to the six-digit level.
iv. Other Interested Parties
A notification by way of facsimile or certified mail is sent to representatives of Mexican or U.S.
Customs prior to sending the notifications to the exporter/producer, importers and Customs
regional offices.
When a desk review is being performed, the exporter/producer, as well as the importers, are
notified of the initiation of the verification.
6.4 Planning
The planning stage includes the following activities:
i. Analysis of the response to the Regional Value Content Questionnaire
ii. Collection of additional information from the exporter/producer that would assist in the
preparation for the on-site visit to ensure efficient use of the time spent at the company's location.
A request for additional information may require completion of the Statement of Cost Accounting
Practices Questionnaire.
iii. Collection of other customs information from Departmental resources (ie. Facilities Information
Retrieval Management System (FIRM), Technical Reference System (TRS)), such as the volume
and value of importations affected by the verification.
iv. Collection of information from library reference material on the industry sector to identify the
significance of the verification.
v. Collection of information from the Intelligence Section, Investigations Section and the
Valuations Division with respect to the product and/or exporter/producer under review.
vi. An Assignment Planning Memorandum is developed for each exporter/producer verification.
The purpose of this memorandum is to have a written plan with respect to the performance of the
verification, which is approved by management and available to each member of the team. This
also provides the audit manager with the background information required when providing
All known Canadian importers who have imported goods from the exporter or producer are
identified and notified in writing that the origin of the goods is under review. Once the verification
is completed, all known importers, including those who have begun to import from the exporter or
producer during the course of the verification, will also be notified of the verification results. It
should be noted that, generally the reassessment period commences with the date the importers
are notified should it be determined that the goods under review do not qualify for the preferential
rate of duty.
assistance to the team, especially during the on-site visit. It is preferable to management that the
structure of the planning memorandum remains consistent from one verification to another,
however, the content for each planning memorandum will vary with the different types of
products/industries under review, the complexity of the issues, and the verification concerns.
The typical planning memorandum contains the following sections:
The verification programs document the specific verification procedures to be undertaken in order
to fulfil the verification objectives. There is a verification program for each major part of the
verification. The verification program(s) for each verification are developed incorporating the
recommended verification procedures (Refer to Chapter 5, section 5.5 for the detail on the
Recommended Verification Procedures).
The planning phase requires approximately three weeks to complete.
Those procedures for verifications which remain a desk review will follow the verification program
for a desk review. A desk review may also require a request for additional information from the
exporter / producer.
6.5 On-site Verification
This phase of the verification process includes:
- An opening interview with company officials to explain the objectives of the verification;
- The execution of the verification procedures, as documented in the Assignment Planning
Memorandum prepared in the planning stages of the verification;
- The preparation of working papers in accordance with verification standards; and
- An exit interview with company officials to discuss verification findings and their impact on the
NAFTA eligibility of the product shipped to Canada.
Specifically, during the on-site visit, the team will conduct tests and procedures considered
necessary to determine that:
i. all parts originating in a non-NAFTA country have been identified;
ii. all parts originating in a non-NAFTA country have been sufficiently transformed during
i. Verification Objectives
ii. Scope of the Verification - (period and products/use of representative models)
iii. Team Members
iv. Assignment of Responsibilities - (referenced to verification programs)
v. Milestones - (verification planning dates, verification visit dates, file completion, evaluation and
report target dates, total estimated hours for completion)
vi. Reasons for Verification Selection - (applicable rule of origin, regional value content
submission, duty differential, revenue risk)
vii. Overview of the Company Being Reviewed - (general information, primary contact, plant
statistics, annual sales to Canada, subsidiaries and/or related companies, fiscal year, cost
accounting method)
viii. Verification Concerns - (sensitivity of eligibility, intermediate materials, fungible materials,
related suppliers, etc.,)
ix. Conduct of the Verification - (guidelines, responsibilities, interviews, working papers standards,
disposition of verification findings)
x. Assessment Process - (responsibility, assessment period)
xi. Specific References for the Verification - (NAFTA, Departmental Memorandums, Customs Act)
xii. Detailed Verification Programs - non-qualifying operations, tariff classification, Regional Value
Content (transaction value method or net cost method), transshipment, and tariff treatment.
xiii. Agenda of items to be discussed in the opening interview.
processing so as to undergo the necessary tariff change as required by the specific rule of origin;
iii. the value of materials have been calculated in accordance with the NAFTA;
iv. the imported good into Canada does not undergo further production or any other operation
outside the territories of the other parties, other than unloading, reloading, or any other operation
necessary to preserve it in good condition or to transport the good to Canada.
v. the Regional Value Content requirement using either the net cost method or the transaction
value method has been met.
vi. the proper NAFTA tariff treatment has been used for the imported originating goods.
Examples of tests and procedures considered necessary would be:
It is important to note that this type of exporter/producer verification is transaction-based as

opposed to system-based and therefore a complete and thorough evaluation of the internal
control system is not performed. An example of the evaluation made of internal controls is
documented in a standard checklist called the Review of Policies, Procedures and Internal
Controls Relative to Accounting and Management Systems.
Depending on the complexity of the verification, the on-site verification can require two to ten
weeks at the premises of the exporter/producer.
6.6 Analysis of Information and Finalization
The finalization stage of both desk reviews and on-site verifications involve the review of the
verification file and the written determination by the Audit Manager and/or Senior Management for
quality control reasons. A Verification File Completion Checklist exists to assist the team in the
finalization of the file.
The Origin Audits Unit issues two types of written determinations: the initial written determination,
and the final written determination.
The preparation of the initial written determination associated with an on-site verification takes
place upon the team's return to the office and includes the organization of the verification file in
addition to the writing of the determination. An initial written determination is also prepared for
verifications conducted by desk review. The purpose of the initial written determination is to
formally explain the verification findings to the exporter/producer and to conclude our verification
as to the eligibility of the good for a NAFTA preferential tariff treatment. If the goods do not
a.) interviews with company personnel and external auditors;

b.) walkthroughs of the accounting, purchasing and other systems;
c.) evaluation of internal controls;
d.) system testing;
e.) reconciliation of the response to the Regional Value Content Questionnaire to the documents
such as the General Ledger;
f.) obtaining source (supporting) documents such as invoices, supplier certifications etc.;
g.) conducting verifications of suppliers of materials. The Origin Audit Unit has developed supplier
confirmation questionnaires to be used to verify the origin of a material. Three types of supplier
confirmation questionnaires have been developed for different types of goods under review: the
non-automotive good; the light-duty automotive good; and the heavy-duty automotive good. A
supplier involved in the supplier confirmation process will receive a notification as to whether or
not the material under review is an originating material. If more detailed information is required, a
specific NAFTA origin questionnaire may be forwarded to the supplier. As well, an on-site visit to
the supplier's premises may be required. A more detailed supplier verification will result in a more
detailed written determination. All supplier verifications are conducted following the procedures
set out in the Chapter 5 Regulations.
qualify, this report will serve as a notice of the intent to deny the preferential tariff treatment. This
notice allows 30 days to the exporter/producer to provide in writing comments or additional
information relevant to the origin verification.
Once the 30 days allowed in the initial written determination have expired the final written
determination is sent to exporter/producer. If the goods are found to be non-originating, the final
written determination serves as a re-determination notice of the origin of the goods.
If the goods are determined to be eligible for a NAFTA preferential rate of duty, only one written
determination will be prepared.
6.8 Notifications and Re-assessments / Re-Liquidations
MEXICO
ANNEX 6
6.1. Types of Verifications
In accordance with NAFTA, the Direction of International Audit (DIA) may conduct a verification of
origin with respect to the good that is imported into its territory by means of a verification
questionnaire or verification visit to the premises of the exporter or producer.
Verifications conducted by the DIA involve cases where the goods are identified as goods wholly
obtained or produced in the territory of one or more of Parties to NAFTA, where the goods are
produced entirely from originating materials in the territory of one or more of the Parties to the
NAFTA, or where the claimed origin criterion applicable to the goods only involves a tariff change
requirement, as outlined in Annex 401. When these verifications require an on-site visit, the DIA
may observe the manufacturing or assembling process and review the relevant books and
records to ascertain the origin of the materials used in the production of the goods and to gather
other information required to determine the origin of the goods.
Verifications conducted by the DIA also involve a regional value content requirement and/or
complex issues such as inventory management systems reviews and tracing for automotive
goods. These verifications involve a detailed examination of all books and records pertaining to
the origin, purchase, costs and value of, and payment for, the goods in question; all components
and materials forming part of the goods in question; the inventory management control system;
and, the process involved in the production of the goods in question to the point where they are
ready for export to the territory of Mexico.
6.2. Identification and Selection of Goods for Verification:
The DIA receives referrals for verifications from different sources such as industry complaints
questioning whether some importers are entitled to the NAFTA preferential rates of duty, tariff
economic trend analysis of high volume, high risk importations (i.e. products subject to quotas or
antidumping or countervailing quotas, etc.), complex rule of origin goods, and referrals from other
Government ministries based on their separate analysis. Currently, most of the verifications which
are conducted by the DIA are self initiated and are identified through its own targeting project
Once the final written determination is sent to the exporter/producer, notifications of the
verification results are sent to the Canadian importers and the Canadian customs regional offices.
Attached to the letters sent to the importers and customs regional offices are schedules which
calculate the re-assessment applicable to each importer. Currently, the customs regional offices
prepare the Detailed Adjustment Statements to invoice the importers for additional duties owing
and the corresponding notice of denial to be sent to the exporter.
system.
Subsequent to a good being identified, a preliminary risk analysis of the importer is performed by
the DIA to determine whether the good should be the subject of an on-site origin verification or if
a verification through questionnaire is needed. For those situations in which an on-site origin
verification is considered to be necessary, priorities are set to determine which verifications
should be performed first. The following criteria are relied upon to set the on-site verification
priority:
6.3.Notification to Relevant Parties

Once it has been determined that a particular good will be subject to an origin verification, all
relevant parties are identified and notified that an origin verification will be conducted with respect
to the specific goods under review. The parties subject to notification are as follows: (Refer to
Appendix J for examples of the notifications).
I. Exporter/Producer:
The exporter/producer is initially contacted by means of a notice of intention to conduct a
verification sent by certified mail, in order to arrange for an on-site visit and to ensure cooperation with regard to access to the relevant records, a guided plant tour upon the verification
team's arrival and the availability of company officials to meet the auditors' requests during the
course of the verification.
The exporter or producer will be sent a notice of the DIA's intention to conduct a verification, by
certified mail. Written consent must be given by the exporter or producer within 30 days upon
receipt of the notification. If the written consent is not received by DIA officials, a written
determination with a notice of intent to deny preferential tariff treatment to the Mexican importers
will be sent to the exporter or producer, allowing the exporter or producer to provide consent for a
verification to the DIA before denying preferential tariff treatment.
When the origin verification is conducted by means of an origin verification questionnaire, the first
notification of intention to conduct such verification will be the origin verification questionnaire.
ii.Importers
All known Mexican importers who have imported goods from the exporter or producer are
identified and requested to provide a copy of the certificate of origin. By this mean the importer is
notified that the goods imported are subject to origin review.
iii.Other Interested Parties
A notification by way of facsimile or certified mail is sent to representatives of Canadian and U.S.
Customs Services, 5 days prior to sending the notifications to the exporter/producer.
i. an industry complaint;
ii. revenue risk to the Department;
iii results of the analysis of the targeting project system;
iv. availability of resources (auditors), including matching the more experienced auditor with the
more complex assignment;
v. compliance history by importers or exporters to DIA requirements of information;
vi. difficulties/complexities of the company/industry affected by verification;
vii. length of time a referral has been awaiting verification action, and
viii.other factors
6.4 Planning
The planning stage includes the following activities:
The typical planning memorandum contains the following sections (Refer to Appendix L):
i. Verification Objectives
ii.Scope of the Verification (period and goods)
iii.Team Members
iv.Assignment of areas under review to verification team members (referenced to verification
programs)
v.Schedules (verification planning dates, verification visit dates, file completion, evaluation and
report target dates)
vi.Reasons for Verification Selection (applicable rule of origin, revenue risk, etc.)
vii.Overview of the Company Being Reviewed - (general information, primary contact,
subsidiaries and/or related companies, fiscal year, cost accounting method)
vii.Verification Concerns - (accumulation, intermediate materials designation, fungible materials,
related suppliers, etc.,)
ix.Guidelines, responsibilities, interviews to be made, working papers standards
x.Specific References for the Verification - (NAFTA, Departmental Memorandums, Internal
legislation)
xi.Detailed Verification Programs - non-qualifying operations, tariff classification, Regional Value
Content (transaction value method or net cost method), transshipment, and tariff treatment.
xii.Agenda of items to be discussed in the opening interview.
The verification programs document the specific verification procedures to be undertaken in order
to fulfill the verification objectives. The verification program(s) for each verification are developed
incorporating the recommended minimum verification procedures (Refer to Chapter 5, section 5.5
for detail on the Recommended Verification Procedures). Depending upon the circumstances and
the verification findings, in some instances, the verification procedures included in the verification
programs may vary. All changes to the verification procedures developed during the planning
phase of the verification must be indicated in the working papers, stating the reasons that
originated such changes.
6.5On-site Verification
This phase of the verification process includes:
- An opening interview with company officials to explain the objectives of the verification (refer to
i. Analysis of the response to an origin verification questionnaire (if sent).

ii.Collection of additional information from the exporter/producer that would assist in the
preparation for the on-site visit, in order to ensure efficient use of the time spent at the company's
premises.
iii.Collection of other customs information from Departmental resources, such as the volume and
value of importations affected by the verification.
iv.Collection of technical information from reference material on the industry sector.
v.Collection of information from other divisions within the Ministry of Finance with respect to the
product and/or exporter/producer under review.
vi.An Assignment Planning Memorandum is developed for each exporter/producer verification.
The purpose of this memorandum is to have a written verification, which is approved by
management and available to each member of the team. This also provides all audit team
members with the background information required while conducting the on-site visit. The content
for each planning memorandum will vary depending upon the different types of goods under
review, the complexity of the specific rule of origin applicable to the goods subject to verification
and addresses all verification concerns and the application of verification procedures.
Appendix L);
-The execution of the verification procedures, as documented in the Assignment Planning
Memorandum prepared in the planning stages of the verification;
-The preparation of working papers in accordance with verification standards; and
-An exit interview with company officials to discuss verification findings and their impact on the
NAFTA eligibility of the product imported to Mexico.
Specifically, during the on-site visit, the team will conduct tests and procedures considered
necessary to determine that:
Examples of tests and procedures considered necessary would be:

a) interviews with company personnel and external auditors;
b)walkthroughs of the accounting, purchasing and other systems;
c)evaluation of internal controls;
d)system testing;
e)when applicable reconciliation of the response to the Regional Value Content Questionnaire to
source documents such as the General Ledger; and
f)obtaining external confirmations from suppliers.
Depending on the complexity of the verification, the on-site verification can require two to ten
weeks at the premises of the exporter/producer.
6.6 Analysis of the information and finalization
The finalization stage involves the review of the verification file and the written determination by
the Audit Manager and/or Senior Management for quality control reasons.
For the initial written determination for each party please refer to Appendix A.
The preparation of the initial written determination takes place after the verification team left the
auditee's premises and includes the organization of the verification file. The initial written
determination's purpose is to formally explain the verification findings to the exporter/producer
and to conclude the verification as to the eligibility of the good. If the goods do not qualify this
report will serve as a notice of the intent to deny preferential tariff treatment. This notice allows 30
calendar days to the exporter/producer to provide in writing comments or additional information
regarding the eligibility of the good. (Refer to Appendix N)
Once the 30 days allowed in the initial written determination have expired the final written
determination is sent to exporter/producer. If the goods are found to be non-originating, the final
written determination serves as a re-determination notice of the origin of the goods. (Refer to
Appendix N)
i.all materials originating in a non-NAFTA country have been identified;

ii.all materials originating in a non-NAFTA country have been sufficiently transformed during
processing so as to undergo the necessary tariff change as required by the specific rule of origin;
iii.the value of materials have been calculated in accordance with the NAFTA;
iv.the imported good into Mexico does not undergo further production or any other operation
outside the territories of the other parties, other than unloading, reloading, or any other operation
necessary to preserve it in good condition or to transport the good to Mexico
v.the Regional Value Content requirement using either the net cost method or the transaction
value method has been met.
vi.the proper NAFTA tariff treatment has been used for the imported originating goods.
6.8 Notifications and Re-assessments/Liquidation

Once the final written determination is notified to the exporter/producer, notifications of the
verification results are sent to the Mexican importers in the terms stated in article 48 of the Fiscal
Federal Code.. Appendix N contains samples of initial and final written determination and
Appendix O contains a sample notification of the verification results used to notify the importers.
The importer has a 15 labor day period in which can provide in writing any additional comment or
information regarding the content of the final origin determination.
Once the 15 labor day period is expired, or the importer does not demonstrate that the good
subject to verification qualifies, a reassessment letter is notified to the importer detailing the
duties owed, indexation surcharges, etc.

CHAPTER 7
NAFTA WORKING GROUPS
7.1 Article 513 of the North American Free Trade Agreement
The North American Free Trade Agreement, in Article 513, provides for the establishment of two
committees: 1) a Working Group on Rules of Origin; and 2) a Customs Subgroup. The Audit
Group reports directly to the Customs Subgroup and is further detailed in section 7.4 of this
Chapter. Sections 7.2 and 7.3 explain the activities of the Working Group on Rules of Origin and
the Customs Subgroup respectively.
7.2 Working Group on Rules of Origin
7.3 Customs Subgroup

The Customs Subgroup reports to the Working Group on Rules of Origin and is charged with
ensuring that the cooperative process continues. The Customs Subgroup will review, update, and
monitor how the Customs Administrations are going about administering the NAFTA. It will also
meet at least four times a year, and on the request of any Party, and will endeavor to agree on:
i) the uniform interpretation, application and administration of various articles of Chapter 3, all of
Chapters 4 and 5, the Marking Rules and the NAFTA Rules of Origin Regulations;
ii) tariff classification and valuation matters relating to determination of origin;
iii) equivalent procedures and criteria for the request, approval, modification, revocation and
implementation of advance rulings;
iv) revisions to the Certificate of Origin;
v) any other matter referred to it by a Party, the Working Group or the Committee on Trade in
Goods; and,
vi) other Customs related matters arising from the NAFTA.
Matters that cannot be resolved within 60 days at this level must be referred to the Working
Group on Rules of Origin.
The Subgroup will also be responsible for the exchange of advance rulings and origin
determinations.
7.4 Audit Group
The Working Group is charged with facilitating cooperation and considering modifications to the
NAFTA on rules of origin, NAFTA Rules of Origin Regulations, drawback, and country of origin
markings. It will meet at least four times a year to exchange information and ensure uniform and
consistent interpretation and application. The group has 30 days to reach agreement on issues
passed to it by the Customs Subgroup. Representatives of each Party attending the Customs
Subgroup meeting, (i.e., Customs representative) will attend the Working Group meeting.
The Audit Group reports directly to the Customs Subgroup, and is responsible for assisting the
Customs Subgroup by discussing and developing technical papers. It will meet at least four times
per year, and in addition to being a technical arm of the Customs Subgroup, the Audit Group will
also be specifically responsible for:
i) developing and improving this Audit (Verification) Manual and recommended verification
procedures;
ii) developing and improving the verification questionnaires, forms and brochures;
iii) resolving complex issues which were referred by the Customs Subgroup.
The minutes of the Audit Group meeting will be submitted to the respective members of the
Customs Subgroup on a regular and timely basis.

LIST OF APPENDICES
U.S. NAFTA VERIFICATION MANUAL
SOP RAD1-007-97 dated May 1, 1997

List of Appendices, page 2
AUDIT PROGRAMS - (Tri-lateral)
L
Goods Wholly Obtained or Produced Entirely in the Territory of One or more of the Parties
M
Goods Produced entirely in the Territory of One or More of the Parties Exclusively from
Originating Materials
N
Preference Criteria D
O
Light Duty Automotive Goods - Averaged
P
Light Duty Automotive Goods- Non-Averaged
Q
Heavy Duty Automotive Goods - Averaged
R
Heavy Duty Automotive Goods - Non-Averaged
EXHIBITS
A. Verification (Audit) Process - Flow Chart
APPENDIX A
NORTH AMERICAN FREE TRADE AGREEMENT
CERTIFICATE OF ORIGIN
CUSTOMS FORM 434
APPENDIX B
A
Certificate of Origin: CF-434
B
General Questionnaire CF- 446
C
Election to Average Form for Vehicles
D
Sample Letter Proposing NAFTA Verification Visit(Attachment B to CD 3810-008 dated
04/20/94)
E
Sample Notification of NAFTA Verification of Goods to Known Importers of Record
F
Review of Policies, Procedures, and Internal Controls Checklist
G
Final Written Determinations- Positive and Negative Attachments A & B to CD 3810-010
dated 07/27/94)
H
Sample Notification of Verification Results to Known Importers
(1)
Goods met NAFTA rules of origin requirements
(2)
Goods did not meet NAFTA rules of origin requirements
I
Supplier Confirmation Letters
(1)
for non-automotive parts suppliers
(2)
for automotive parts suppliers
J
Supplier Verification Notification (DRAFT)
K
Regulatory Audit Final Audit Reports
NAFTA
GENERAL QUESTIONNAIRE
CUSTOMS FORM 446
APPENDIX C
NAFTA
UNITED STATES ELECTION TO AVERAGE FORM
CF - 447
APPENDIX D
This appendix is a sample of the letter to be sent to the exporter/producer regarding the initiation
of a NAFTA verification visit.
This sample had been previously distributed as Attachment B to Customs Directive 099 3810008 dated April 20, 1994, entitled Notification of Proposed Verification Visits Under the North
American Free Trade Agreement (NAFTA).
APPENDIX E
NAFTA VERIFICATION MANUAL
SAMPLE NOTIFICATION OF PROPOSED NAFTA VERIFICATION OF GOODS
TO KNOWN IMPORTERS OF RECORD
DATE
NAME OF IMPORTER OF RECORD
ADDRESS OF IMPORTER OF RECORD
To Whom It May Concern:
According to our records, you are listed as an importer of record for goods imported from (NAME
OF EXPORTER/PRODUCER). Please be advised that the origin of (TYPE OF PRODUCTS)
imported from (NAME OF EXPORTER/PRODUCER) is currently under review by this office. We
are requesting that you provide copies of Certificate(s) of Origin relating to all entries for the
merchandise above shipped from this exporter/producer since (TIME PERIOD UNDER REVIEW)
for which duty free treatment under NAFTA was claimed.
Importations of such goods may be subject to full duty if the goods are determined not to be
entitled to the preferential rate of duty under the North American Free Trade Agreement.
Following this review, when a determination with respect to the eligibility of such goods is made,
you will be notified. Please provide the Certificate(s) of Origin no later than 30 days from the date
of this letter to: (NAME OF CUSTOMS OFFICER AND MAILING ADDRESS). Should you have
any questions regarding this matter, you may contact (NAME OF CUSTOMS OFFICER) at
(TELEPHONE NUMBER OF CUSTOMS OFFICER).
Sincerely,
Field Director
Regulatory Audit
or
Port Director
APPENDIX F
REVIEW OF POLICIES, PROCEDURES AND INTERNAL CONTROLS CHECKLIST RELATIVE
TO
EXPORTER/PRODUCER AUDIT PERIOD

Purpose
The Policies, Procedures and Internal Controls Checklist can be used to assist with the
evaluation of policies, procedures and the control environment in order to understand their effects
on the accounting and management systems of the organization.
This checklist is relevant only to a NAFTA Origin Verification.
Ensure that discussions concerning controls are directed to key personnel which have the
appropriate knowledge of the internal controls. The answers to the questions below are
necessarily subjective and require considerable judgement. Definitive, reportable answers are not
expected at this stage in the audit. Rather, the checklist is intended to help develop the audit
approach by: evaluating the adequacy of controls, and the extent of reliance placed on these
controls for compliance to the NAFTA rules of origin.
Yes / No Comments
General
1. Has Regulatory Audit previously reviewed the internal control systems including financial
management, budget preparation and control, accounting and control of expenditures, standard
costing, operating reports, and computerization?
2. Has there been any significant changes in operations (including accounting and financial
systems) implemented during the period under review?
(A) CONTROL
Organization
3. Briefly describe the organization structure.
4. Obtain a current organization chart.
5. Are there job descriptions for all personnel?
6. Are the instructions or compliance requirements clear, understood and well delegated for:
- purchase, approval for payment and payment?
ACCOUNTING AND MANAGEMENT SYSTEMS
System Design, Maintenance and Supervision

12. Obtain available documentation on accounting systems and procedures and controls to
ensure the policies are consistent with prudent business practices and cost accounting
standards?
13. Is there a uniform systems development policy which is followed for all new programs either
purchased or developed with respect to:
- budgeting;
- accumulating costs;
- engineering and development of goods being produced; and
- reporting costs?
14. Does a uniform policy regarding the procedures required to change existing programs exist
with respect to:
- budgeting;
- accumulating costs;
- engineering and development of goods being produced; and
- reporting costs?
15. Does each stage of development or change require active participation of users (i.e.
production line management)?
16. Does testing of Ad Hoc reports (i.e., produced by spreadsheet, report generator or EDP
department) occur where they are relied on?
17. Do standards require uniform documentation for each of the following applications that control
the financial aspects of operations:
- system documentation;
- operating instructions;
- user documentation; and
- acceptance testing
for both automated and manual tasks or functions? If so, is documentation available for our
review?
18. Do financial reports provide adequate information for appropriate NAFTA certification
management and control? For example,
- review of standard cost of products;
- review of origin of goods at year end when averaging has been used to certify goods;
- review of usage and variances and how they have affected the origin of the goods certified as
originating;
- obtaining and reviewing supplier certifications?

- completion of the NAFTA certificate of origin and any related customs documentation?
Provide a brief description of the company policies for the above.
7. Are the lines of authority, responsibility and control between the entity and common service
agencies and/or outside service centers (i.e. suppliers, subcontractors, etc.) clearly defined?
8. With respect to related parties:
- obtain a list of related parties;
- obtain a list of related party transactions related to the goods in question;
- obtain a list and details of any related party royalty agreements.
9. Is there an effective internal audit department which reviews policies, procedures, controls and
plant operations?
- obtain the most recent internal audit department report on policies procedures and controls.
10. Does the external auditor perform on-site audit activity (i.e. a financial and/or compliance
audit) on a periodic basis?
- obtain the most recent external audit report on policies, procedures and controls.
11. Were any activities performed (evaluation of policies, procedures and internal controls) by the
trade consultants, or lawyers, or accountants who were involved in the calculation of the RVC
percentage?
- origin of the materials being purchased; and

- review when there is a change in suppliers and sourcing of materials.
System Monitoring
19. Are the following methods used to monitor the reliability of financial data:
- comparisons to nonfinancial reports (i.e., to data prepared outside the accounting department)?
- preparation of capital and operating budgets?
- use of variance reports to control the operations?
- comparison of interim financial statements to budgets, variance reports, etc?
20. Can product costs used to calculate the RVC percentage be traced to books of accounts?
21. Are cost systems integrated and/or reconciled to financial records such that each type of cost
is allocated only once and on only one basis to a product cost or cost objective?
22. Does the internal audit function review:
- existing manual accounting systems?
- existing EDP accounting systems?
- new accounting systems (manual and EDP) at critical points in development?
23. To ensure the accuracy of financial data, are interim financial statements:
- prepared regularly?
- prepared on a timely basis?
- prepared in sufficient detail?
- prepared using proper cut-off procedures?
- reconciled to the accounting records?
24. Is the cost accounting system capable of producing actual unit or job lot costs, and/or are
operations or product costs reported to the profit center level?
25. Are burden, center, or departmental costs developed providing segregation for activities such
as fabrication, assembly, repair, overhead, research and development, sales and marketing
functions, shipping activities, etc.?
26. Determine the procedures followed with respect to charges from corporate office or related
companies pertaining to such costs as direct material, royalties, selling activities, non-allowable
interest and shipping activities (are these charges material?).
(B) PROTECTION OF ASSETS AND RECORDS
27. Does the entity have a record retention program or policy (it should assure that records are
retained at least five years as required by the NAFTA)?
(C) EVALUATION OF COST ACCOUNTING SYSTEM
28. Determine the type of cost accounting system utilized by the manufacturer. A written outline
of the accounting system, prepared by the exporter/producer, would be useful.
29. Ensure that indirect costs (i.e. overhead) are accumulated into a cost pool that has been
allocated in accordance with Schedule VII of the NAFTA Rules of Origin Regulations.
30. Ensure that the cost allocation method selected by the exporter/producer has been used
consistently throughout the exporter's/producer's fiscal year.
31. Ensure that any variances (i.e. material price and quantity variances; and labor rate and time
variances) have been appropriately disposed of within the cost accounting system and are
reflected in the costs used to calculate the regional value content percentage (considering the
materiality of the variances and the effect on the final result).
32. Ensure that the company has identified the integration of the cost accounting system with the
financial accounting system.
33. Determine whether the practices for setting and revising of standards, use of standard costs,
Reporting
and disposition of variances is stated in writing and consistently followed.

34. Compare product unit selling price to unit cost per the regional value content (net cost
method) calculation (and unit value for duty claimed for U. S. Customs purposes) ensuring that:
- margin is consistent with margin reported for divisional operations and/or financial statements;
- margin is sufficient to provide for a reasonable allocation of additional product related costs such
as the \excluded costs, with the balance of this margin attributable as a normal profit levels;
(D) EFFECT ON AUDITING PROCEDURES
In your judgement, if any of the answers on this worksheet require special audit attention (either
modification in the nature, timing, and extent of procedures or a heightened sense of awareness
while performing the procedures), amend audit programs accordingly.
APPENDIX G
APPENDIX H(1)
SAMPLE NOTIFICATION OF VERIFICATION RESULTS TO KNOWN IMPORTERS
GOODS MET NAFTA RULE OF ORIGIN REQUIREMENTS
DATE
CERTIFIED MAIL
ADDRESS OF IMPORTER OF RECORD
As importer of record, and further to our letter dated (DATE OF INITIAL NOTIFICATION TO
IMPORTER OF RECORD OF THE REVIEW), please be advised that the verification of origin of
(TYPE OF PRODUCTS) imported from (NAME OF EXPORTER/PRODUCER) is now complete.
The purpose of this verification was to determine whether the (TYPE OF PRODUCTS) imported
into the United States during (TIME PERIOD), met the rule of origin requirement according to the
North American Free Trade Agreement (NAFTA) and were entitled to the preferential rate of duty.
It was concluded, as a result of our verification, that the (TYPE OF PRODUCTS) imported from
(NAME OF EXPORTER/PRODUCER) during the period (TIME PERIOD UNDER REVIEW) met
the NAFTA rule of origin requirements.
Should you have any questions regarding this matter, you may contact (NAME OF CUSTOMS
OFFICER) at (TELEPHONE NUMBER OF CUSTOMS OFFICER).
This appendix includes two sample origin determinations. Both are completed on a Customs
Form 29. The first CF-29 is a sample of a positive determination, and the second CF-29 is a
sample of a negative determination, along with the notice of intent to deny. The origin
determination (CF-29) would be sent to the exporter/producer whose goods were subject to a
NAFTA verification.
These samples had been previously distributed as Attachments A and B to Customs Directive
099 3810-010 dated July 27, 1994, entitled Issuance of Origin Determinations Under the North
American Free Trade Agreement (NAFTA).
Sincerely,
Field Director
Regulatory Audit
or
Port Director
APPENDIX H (2)
SAMPLE NOTIFICATION OF VERIFICATION RESULTS TO KNOWN IMPORTERS
GOODS DID NOT MEET NAFTA RULE OF ORIGIN REQUIREMENTS
DATE
To whom It May Concern:

As imporer of record, and further to our letter dated (DATE OF INTIIAL NOTIFICATION TO
IMPORTER OF RECORD OF THE REVIEW), please be advised that the verification of origin of
(TYPE OF PRODUCTS) imported from (NAME OF EXPORTER/PRODUCER) is now complete.
The purpose of this verification was to determine whether the (TYPE OF PRODUCTS) imported
into the United States during (TIME PERIOD), met the rule of origin requirement according to the
North American Free Trade Agreement (NAFTA) and were entitled to the preferential rate of duty.
It was concluded, as a result of our verification, that the (TYPE OF PRODUCTS) imported from
(NAME OF EXPORTER/PRODUCER) during the period (TIME PERIOD UNDER REVIEW) did
not meet the NAFTA rule of origin requirements. You should receive a Customs Form 29 from the
Port Director responsible for your good which provides additional information concerning the
determination.
Should you have any questions regarding this matter, you may contact (NAME OF CUSTOMS
OFFICER) at (TELEPHONE NUMBER OF CUSTOMS OFFICER).
Sincerely,
Field Director
Regulatory Audit
or
Port Director
APPENDIX I(1)
(A sample supplier letter for non-automotive parts suppliers)
REGISTERED MAIL
Supplier Name Date
Supplier Address
Dear Sir/Madam,
The United States Customs Service (U.S. Customs) is conducting a verification of the origin of
CERTIFIED MAIL
ADDRESS OF IMPORTER OR RECOED
provide description of the good which is produced by company name and imported into the
United States under the terms of the North American Free Trade Agreement (NAFTA).
It would be appreciated if you could assist U.S. Customs by completing the attached supplier
confirmation with respect to Part Number and Material Description supplied by your company.
The completed supplier confirmation should be mailed to the address stated below or faxed to
(xxx) xxx-xxxx.
Sincerely,
Field Director
Regulatory Audit
or
Port Director
Attachment: Supplier Confirmation
PROTECTED WHEN COMPLETED
SUPPLIER CONFIRMATION
NOTE: This Supplier Confirmation consists of four sections:
Section I - Supplier Information
Section II - Production Process
Section III - Listing of Materials
Section IV - Certification
Please complete all sections. Please note that the information requested is basic and
further information may be required in the future.
DEFINITIONS
"non-originating material" means a material that does not qualify as originating under the NAFTA;
"originating material' means a material that qualifies as originating under the NAFTA;
"production" means growing, mining, harvesting, fishing, trapping, hunting, manufacturing,
processing or assembling a good;
"tariff item" refers to any eight-digit number set out in the column "Tariff Item" in the Harmonized
System.
SECTION I - SUPPLIER INFORMATION
U.S. Customs Service

Mailing Address
Attention: Name of Customs Officer
The completed supplier confirmation will be used by U.S. Customs only. U.S. Customs shall, in
accordance with Article 507 of the NAFTA, protect the confidentiality of all business information
submitted in this supplier confirmation.
Please complete the supplier confirmation by Due Date. If the supplier confirmation is not
received by the due date the value of the part will be deemed by U.S. Customs to be considered
non-originating pursuant to Article 511 of the North American Free Trade Agreement and
181.72(d) of the U.S. Customs Regulations.
If you have any further questions about the completion of the attached confirmation, please call
Name of Customs Officer at Telephone Number.
Supplier Name Telephone Number

___________________________ _____________________
Address
____________________________
____________________________
____________________________
Part Name and Part Number Supplied Tariff Classification (Tariff Item-8 digits)
_________________________________ ______________________
_________________________________ ______________________
_________________________________ ______________________
Period Covered
_______________
1. Was this part manufactured or assembled by your company?

Yes_____
No______
2. If your company did not manufacture or assemble the Part being confirmed, provide the name
and address of the company and contact person from whom it was purchased.
Name of supplier ______________________________
Address ______________________________
______________________________
______________________________
Telephone No. ________________________
Contact Person ________________________
3. Please describe the production process if your company manufactured or assembled the
above mentioned Part.
______________________________________________________________
______________________________________________________________
______________________________________________________________
4. Please provide the address of the plant where the production process has taken place.
Address _________________________________________________________
_________________________________________________________
_________________________________________________________
5a. Was any portion of the production process undertaken outside the United States, Canada, or
Mexico?
YES__________ NO_____________
5b. If yes, please briefly describe the part of the production process that took place outside the
United States, Canada, or Mexico.
______________________________________________________________
______________________________________________________________
______________________________________________________________
SECTION II- PRODUCTION PROCESS
______________________________________________________________
______________________________________________________________
6. Please indicate the period (year/month) of the production for which this information has been
reported.
______________________________________________________________
______________________________________________________________
SECTION III - GENERAL INSTRUCTIONS
(A) List all materials and the respective supplier names and addresses which were used in the
production of the part being confirmed. If the material is a non-originating material or a material of
unknown origin, list the tariff classification number (to the 6th digit) for that material in the spaces
provided.
(B) Indicate in the column provided, under the category "originating", "non-originating", or "origin
unknown", the unit value of each material determined in accordance with subsection 7(1) of the
SECTION III - LISTING OF MATERIALS
SECTION IV-CERTIFICATION
I certify that the information provided in response to this supplier confirmation is true and accurate
and I assume the responsibility of proving such representations. I agree to maintain, and present
upon request, all records and documentation necessary to support the representations made in
response to this confirmation.
________________________________________
Authorized Signature Company Name and Address(Print or Type)
____________________ ____________________________
Name(Print or Type) Title(Print or Type)
________________________________________________________
Date(DD/MM/YR) Telephone No. Facsimile No.
APPENDIX I(2)
(A sample letter for automotive parts supplied
to a producer of a light duty automtovie good)
REGISTERED MAIL
NOTE 1: Materials purchased from manufacturers or suppliers in the NAFTA territory are not
necessarily originating materials (materials claimed to be originating must qualify as originating
under the NAFTA Rules of Origin Regulations). Any written representations obtained from
suppliers of materials that a material qualifies as an originating material must be kept on file for
purposes of verification.
Supplier Name Date

Supplier Address
Dear Sir/Madam,
TIER 1:
The United States Customs Service (U.S. Customs), is conducting a verification of the origin of
provide description of the good which is produced by company name and imported to the
United States under the terms of the North American Free Trade Agreement (NAFTA).
TIER 2:
The United States Customs Service (U.S. Customs), is conducting a verification of the origin of
provide description of the good (Tier 1 company name which is produced by company name
(Tier 1 company name).
Mailing Address
Name of Customs Officer
The completed supplier confirmation will be used by U.S. Customs only. U.S. Customs shall, in
accordance with Article 507 of the NAFTA, protect the confidentiality of all business information
submitted in this supplier confirmation.
Please return the supplier confirmation by Due Date. If the supplier confirmation is not received
by the due date the value of Part Number and Material Description will be deemed by U.S.
Customs to be considered non-originating pursuant to Article 511 of the North American Free
Trade Agreement and 181.72(d) of the U.S. Customs Regulations and subsection 9(7) of the
Appendix.
If you have any further questions about the completion of the attached confirmation, please call
Name of Customs Officer at telephone number.
Thank you in advance for your cooperation.
Sincerely,
Field Director
Regulatory Audit
or
Port Director
Attachments:
In accordance with the North American Free Trade Agreement (NAFTA) there are special tracing
provisions for the value of non-originating materials (VNM) for the calculation of the Regional
Value Content Requirement (RVC) for Light Duty Automotive Goods. Schedule IV (four) of the
NAFTA Rules of Origin Regulations contains a listing of traced materials that are considered nonoriginating if the materials meet the definition of a traced material. (See attached Appendix for the
listing).
It would be appreciated if you could assist U.S. Customs by completing the applicable Schedules
of the supplier confirmation with respect to Part Number and Material Description supplied by
your company.
If your company imports the material from outside the territory of the United States, Canada, or
Mexico, please complete Schedules I and IV.
If your company self produces the material within the territory of the United States, Canada, or
Mexico, please complete Schedules I and II.
Finally if your company purchases the material from a third party within the territory of the United
States, Canada, or Mexico, please complete Schedule I and III.
The completed supplier confirmation should be mailed to the address stated below or faxed at
(xxx) xxx-xxxx.
U.S. Customs Service
Appendix - Light Duty Automotive Parts

Schedule I- Supplier Information and Certification Schedule II - Listing of Materials
Schedule III - Purchase of Materials within the territory of Canada, the United States or Mexico
Schedule IV - Materials Imported from outside the territory of Canada, the United States or
Mexico
LIGHT-DUTY AUTOMOTIVE PARTS THAT ARE REQUIRED TO BE TRACED
FOR PURPOSES OF THE NAFTA RULES OF ORIGIN REGULATIONS
Schedule IV of the NAFTA Rules of Origin Regulations
4009
4010.10
4011
4016.93.10
4016.99.30 and 4016.99.55
7007.11 and 7007.21
7009.10
8301.20
8407.31
8407.32
8407.33
8407.34.05, 8407.34.15, and 8407.34.25
8407.34.35, 8407.34.45 and 8407.34.55
8408.20
8409
8413.30
8414.59.30
8414.80.05
8415.81 through 8415.83
8421.39.40
8481.20, 8481.30 and 8481.80
8482.10 through 8482.80
8483.10 through 8483.40
8483.50
8501.10
8501.20
8501.31
8501.32.45
8507.20.40, 8507.30.40, 8507.40.40 and 8507.80.40
8511.30
8511.40
8511.50
8512.20
8512.40
8519.91
8527.21
8527.29
8536.50
8536.90
8537.10.30
8539.10
8539.21
8544.30
8706
8707
8708.10.30
LIGHT-DUTY AUTOMOTIVE PARTS THAT ARE REQUIRED TO BE TRACED
FOR PURPOSES OF THE NAFTA RULES OF ORIGIN REGULATIONS

SUPPLIER CONFIRMATION
NOTE: This Supplier Confirmation consists of four Schedules:
Schedule I Supplier Information and Certification
Schedule II Listing of Materials
Schedule III Purchase of Material within the United States, Canada or Mexico
Schedule IV Materials Imported from outside the United States, Canada or Mexico.
Please complete the applicable sections. Please note that the information requested is basic and
further information may be required in the future.
DEFINITIONS
"customs value" means
8708.21
8708.29.20
8708.29.10
8708.29.15
8708.39
8708.40
8708.50
8708.60
8708.70.05, 8708.70.25 and 8708.70.45
8708.80
8708.91
8708.92
8708.93.15 and 8708.93.60
8708.94
8708.99.03, 8708.99.27 and 8708.99.55
8708.99.06, 8708.99.31 and 8708.99.58
8708.99.09, 8708.99.34 and 8708.99.61
8708.99.12, 8708.99.37 and 8708.99.64
8708.99.15, 8708.99.40 and 8708.99.67
8708.99.18, 8708.99.43 and 8708.99.70
8708.99.21, 8708.99.46 and 8708.99.73
8708.99.24, 8708.99.49 and 8708.99.80
9031.80
9032.89
9401.20
(a) in the case of the United States, the value of imported merchandise as determined by the
Customs Service in accordance with section 402 of the Tariff Act of 1930, converted, in the event
such value is not expressed in United States currency, to United States currency at the rate of
exchange determined in accordance with subsection 3(1) of the Regulations;
(b) in the case of Canada, value for duty as defined in the Customs Act, except that for purposes
of determining that value the reference in section 55 of that Act to "in accordance with the
regulations made under the Currency Act" shall be read as a reference to " in accordance with
subsection 3(1) of these Regulations", and;
(c) in the case of Mexico, the valor en aduana as determined in accordance with the Ley
Aduanera, converted, in the event such value is not expressed in Mexican currency, in Mexican
currency at the rate of exchange determined in accordance with subsection 3(1) of these
Regulations.

SCHEDULE I - SUPPLIER INFORMATION AND CERTIFICATION
Supplier Name Telephone Number
_________________________________ _____________________
Address
____________________________
____________________________
____________________________
Part Name and Part Number Supplied Tariff Classification
(Tariff Item-8 digits)
__________________________________ ______________________
__________________________________ ______________________
__________________________________ ______________________
Please provide the address of the plant where the production process has taken place.
Address ____________________________
____________________________
____________________________
____________________________
Please indicate the period( year/month) of the production for which this information has been
reported.
____________________________________________________________________________
____________________________________________________________________________
"non-originating material" means a material that does not qualify as originating under the NAFTA;
"originating material" means a material that qualifies as originating under the NAFTA;
"production" means growing, mining, harvesting, fishing, trapping, hunting, manufacturing,
processing or assembling a good;
"tariff item" refers to any eight-digit number set out in the column "Tariff Item" in the Harmonized
System;
"traced material" means a material, produced outside the territories of the NAFTA countries, that
is imported from outside the territories of the NAFTA countries and is, when imported, of a tariff
provision listed in Schedule IV.
CERTIFICATION
I certify that the information provided in response to this supplier confirmation is true and accurate
and I assume the responsibility of proving such representations. I agree to maintain, and present
upon request, all records and documentation necessary to support the representations made in
response to this confirmation.
__________________________ _______________________________________
Authorized Signature Company Name and Address(Print or Type)
__________________________ ____________________________
Name(Print or Type) Title(Print or Type)
______________________________________________________
Date(DD/MM/YR) Telephone No. Facsimile No.
SCHEDULE II - LISTING OF MATERIALS

(A) List all materials and the respective supplier names and addresses that are used to produce
the above part. Please include the price paid/payable for each of the materials. In the spaces
provided list the tariff classification number ( to the 6th digit or 8th digit level) for all materials that
have been imported from a non-NAFTA country or for all materials of unknown origin.
Material Name Tariff Classification Supplier Price Paid
of Materials Imported Name and Payable *
from non-NAFTA country Address
or of unknown origin
_____________ _______________________ _________ _____________
* If some of the materials used to produce the above part meets the definition of a traced material
,please provide the value of the traced material(customs value plus additions if applicable) in
accordance with Schedule IV of this confirmation.
SCHEDULE III - PURCHASE OF MATERIAL WITHIN THE UNITED STATES, CANADA OR
MEXICO
If your company did not produce the material being confirmed, please provide the name and
address of the company and contact person from whom it was purchased.
Name of supplier _________________________
Address _________________________
_________________________
_________________________
_________________________
Telephone No. _________________________
Fax Number _________________________
Contact Person _________________________
Title _________________________
SCHEDULE IV -MATERIALS IMPORTED FROM OUTSIDE

THE UNITED STATES, CANADA OR MEXICO.
If you have imported the material from outside the United States, Canada or Mexico, please
provide the value of the traced material to the point where you have or taken title.
Please complete the appropriate section.
Section 1
If you have taken title of the material at the time of importation, the sum of
(iii) Add (if not already included in the customs value)

Duties and taxes paid ____________
Customs brokerage costs ____________
____________
Value of Non-Originating Materials
============
Section 2
If you do not have or did not take title to the material at the time of
importation, the sum of
(i) the customs value of the traced material, ___________
(ii) Add (if not already included in the customs value) the following costs that
were incurred in transporting the traced material to the place at which it waswhen
the producer takes title in the territory of the United States, Canada or Mexico:
Freight ___________
Insurance ___________
Packing ___________
Other Costs _____________________
Subtotal ___________
(i) the customs value of the traced material, ____________

(ii) Add (if not already included in the customs value) the following costs that were incurred in
transporting the traced material to the first place at which it was received in territory of the United
States, Canada or Mexico:
Freight ____________
Insurance ____________
Packing ____________
Other Costs ________________________
Subtotal ____________
(iii) Add (if not already included in the customs value)

Duties and taxes paid ___________
Customs brokerage costs ______________________
Value of Non-Originating Materials
===========
APPENDIX J
SAMPLE NOTIFICATION OF VERIFICATION RESULTS
TO SUPPLIER OF MATERIALS
DATE
NAME OF SUPPLIER
ADDRESS OF SUPPLIER
Please be advised that the verification of origin of (TYPE OF MATERIALS) that
you supply to (NAME OF PRODUCER OF GOODS CLAIMING NAFTA) is now
complete. The purpose of this verification was to determine whether the (TYPE
OF MATERIALS) supplied to (NAME OF PRODUCER) during (TIME PERIOD),
met the rule of origin requirement according to the North American Free Trade
Agreement (NAFTA) and qualified as an originating material. It was concluded,
as a result of our verification, that the (TYPE OF MATERIALS) supplied to
(NAME OF PRODUCER) during the period (TIME PERIOD UNDER REVIEW)
met the NAFTA rule of origin requirements. Should you have any questions
regarding this matter, you may contact (NAME OF CUSTOMS OFFICER) at
(TELEPHONE NUMBER OF CUSTOMS OFFICER).
Sincerely,
Field Director
Regulatory Audit
or
Port Director
APPENDIX K
PREPARATION OF AUDIT REPORTS
CERTIFIED MAIL
SOP RAD1-007-97 dated May 1, 1997, entitled Regulatory Audit Reports is

included as Appendix K for reference purposes.
APPENDIX L
VERIFICATION PROGRAM
GOODS WHOLLY OBTAINED OR PRODUCED IN THE TERRITORY
TO ENSURE THAT THE GOOD QUALIFIES AS ORIGINATING BY
SATISFYING CRITERION A - GOODS WHOLLY OBTAINED OR PRODUCED
IN THE TERRITORY OF ONE OR MORE OF THE PARTIES.
Goods Wholly Obtained or Produced Entirely in the Territory of One or More of

the Parties means:
(a) a mineral good extracted in the territory of one or more of the NAFTA
countries;
(b) a vegetable or other good harvested in the territory of one or more of the
NAFTA countries;
(c) a live animal born and raised in the territory of one or more of the NAFTA
countries;
(d) a good obtained from hunting, trapping or fishing in the territory of one or
more of the NAFTA countries;
(e) fish, shellfish, or other marine life taken from the sea by a vessel registered or
recorded with a NAFTA country and flying its flag;
(f) a good produced on board a factory ship from a good referred to in paragraph
(e), where the factory ship is registered or recorded with the same NAFTA
country as the vessel that took that good and flies that country's flag;
(g) a good taken by a NAFTA country or a person of a NAFTA country from or
beneath the seabed outside the territorial waters of that country, where a NAFTA
country has the right to exploit that seabed;
(h) a good taken from outer space, where the good is obtained by a NAFTA
country and is not processed outside the territories of the NAFTA countries;
VERIFICATION PROGRAM - GOODS WHOLLY OBTAINED OR PRODUCED
(CONT'D)
(i) waste and scrap derived from:
(i) production in the territory of one or more of the NAFTA countries, or
(ii) used goods collected in the territory of one or more of the NAFTA countries,
where those goods are fit only for the recovery of raw materials; or
(j) a good produced in the territory of one or more of the NAFTA countries
Definitions:
exclusively from a good referred to in any of paragraphs (a) through (i), or from
the derivatives of such a good, at any stage of production.
VERIFICATION PROGRAM - GOODS WHOLLY OBTAINED OR PRODUCED

(CONT'D)
6. If costs of other producers are included, evaluate if it is feasible that the
merchandise could be wholly produced in a NAFTA country.
7. Ensure there are no non-qualifying operations and only acceptable
transshipment.(Refer to the verification programs contained in Chapter 5.)
8. Conclude as to whether the goods meet the definition of being wholly obtained
or produced entirely in the territory of one or more of the NAFTA countries.
APPENDIX M
GOODS PRODUCED EXCLUSIVELY FROM ORIGINATING MATERIALS
TO ENSURE THAT THE GOOD QUALIFIES AS ORIGINATING BY
SATISFYING CRITERION C - "GOODS PRODUCED ENTIRELY IN THE
TERRITORY OF ONE OR MORE OF THE NAFTA COUNTRIES EXCLUSIVELY
FROM ORIGINATING MATERIALS.
1. Determine if the exporter is also the producer of the good and, if not,
determine the producer of the good.
2. Obtain and review information used to prove that the goods are "Goods Wholly
Obtained or Produced Entirely in the Territory".
3. Determine which part of the definition of "Goods Wholly Obtained or Produced
Entirely in the Territory", as noted above, applies to
the producer.
4. Ensure that all of the requirements within the applicable part of the definition
are met.
5. Review the Bill of Materials (if any exist), the production process procedures or
marketing brochures and determine if all materials have
been accounted for. If not, follow-up.
1. Determine if the exporter is also the producer of the good, and, if not,
determine the producer of the good.
2. Obtain and review information used to prove that the goods are "Goods
Produced Entirely in the Territory of One or More of the Parties Exclusively From
Originating Materials".
3. Request a Bill of Materials (or similar documentation) and compare to the
information received in Step 2. for completeness.
4. Request copies of supplier certifications, or similar documentation that
supports the claim that the materials are originating, if
not already included in the information received in Step 2.
5. Review the certifications for the preference criteria/rule of origin identified by
the supplier of the material. Evaluate if the
supplier claims are feasible.
6. If supplier certifications are inadequate or not available, consider sending

supplier confirmation letters/questionnaires to a sample of suppliers. This sample
could include:
(a) suppliers with companies in non-NAFTA countries;
(b suppliers that are U.S., Mexican or Canadian distributors;
(c) suppliers of high value originating materials; and
(d) suppliers of materials, that, if determined to be non-originating, would not
undergo the applicable tariff classification change as would be required by the
specific rule of origin.
7. Insure the production process takes place within the territories of one or more
of the
NAFTA countries. Is any portion of the production process sub-contracted?
8. Ensure there are no non-qualifying operations and only acceptable
transshipment. (Refer to
the verification programs contained in Chapter 5.)
9. Conclude as to whether the good meets Criterion C - i.e. the good is produced
entirely in the territory exclusively from originating materials.
APPENDIX N
PREFERENCE CRITERION D
TO ENSURE THAT THE GOOD MEETS THE CONDITIONS FOR CLAIMING
PREFERENCE CRITERION D, AND TO ENSURE THAT THE GOOD
GOODS PRODUCED EXCLUSIVELY FROM ORIGINATING MATERIALS

CONTINUED;
QUALIFIES AS ORIGINATING BY SATISFYING A REGIONAL VALUE

CONTENT REQUIREMENT.
CRITERIA
(NOTE: if the good imported from a NAFTA country is classified as a part, then
this provision cannot be used);
For (i) or (ii) above, following conditions must be met:
- The regional value content of the good, is not less than 60 per cent where the
transaction value method is used, or is not less than 50 per cent where the net
cost method is used; and
- the good satisfies all other applicable requirements of the Regulations. Refer to
Subsection 4(4) of the NAFTA Rules of Origin Regulations.
VERIFICATION PROGRAM - PREFERENCE CRITERION D
1. Obtain and review information to prove that the RVC requirement was met.
2. Ensure the tariff classification of the final good and the non-originating
materials are accurate (particularly those non- originating materials that do not
undergo the tariff classification change). Refer to the verification program on tariff
classification contained in Chapter 5 for assistance.)
3. Identify the applicable specific rule of origin and verify that either (i) or (ii)
Criterion D requirements) listed above exist.
4. Proceed with the verification program - non-qualifying operations, the
verification program - transaction value method or the
verification program - net cost method (as applicable), the verification program transshipment
Except for a good provided for in Chapters 61 through 63 of the Harmonized

System, the good is produced entirely in the territory of one or more of the
NAFTA countries but one or more of the non-originating materials used in the
production of the good do not undergo an applicable change in tariff classification
because:
(i) the materials were imported together, whether or not with originating materials,
into the territory of a NAFTA country as an unassembled or disassembled good,
and were classified as an assembled good pursuant to Rule 2(a) of the General
Rules for the Interpretation of the Harmonized System; or
(ii) (A) those materials are provided for under the Harmonized System as parts of
the good, and
(B) the heading for the good provides for both the good and its parts and is not
further subdivided into subheadings, or the subheading for the good provides for
both the good and its parts
APPENDIX O
LIGHT DUTY AUTOMOTIVE GOODS - AVERAGED
VERIFICATION PROGRAM - LIGHT-DUTY AUTOMOTIVE GOODS
(AVERAGED)
TABLE OF CONTENTS
? DEFINITIONS
2. RVC PERCENTAGE REQUIREMENTS FOR LIGHT-DUTY AUTOMOTIVE

GOODS
2.1 The Staged RVC Requirement for a Good of a Tariff Provision Listed on
Schedule IV
2.2 The Staged RVC Requirement for a Vehicle and a Good of Heading 8407
and 8408 and Subheading 8708.40
2.3 Special RVC Requirements for Light-Duty Vehicles Produced in a New Plant
2.4 Value of Machinery
2.5 Special RVC Requirements for Light-Duty Vehicles Produced in a Refit Plant
2.6 General Summary Procedures
3. MOTOR VEHICLE AVERAGING ELECTION
3.1 Identification of Election to Average
3.2 Identification of the Motor Vehicles Produced by the Motor Vehicle Assembler
Which Should be Included in the Election to Average
3.3 Comparison and Reconciliation of the Submission of RVC Information to the
Election Filed Under Section 11 - Motor Vehicle Averaging
3.4 Comparison to the Election Filed Under Section 13(4)-Special RVC
Requirements for Vehicles Produced in a New or Refitted Plant
4. AUTOMOTIVE PARTS AVERAGING
4.2 Identification of the Goods Included in the Automotive Parts Averaging
Election
4.3 Identification of the Motor Vehicle Producer Included in the Automotive Parts
Averaging Election
4.4 Identification of the Country(ies) of Export Included in the Automotive Parts
Averaging Election
1. ELIGIBILITY FOR THE NAFTA RULES OF ORIGIN PROVISIONS FOR

LIGHT-DUTY AUTOMOTIVE GOODS WHERE THE COMPANY HAS ELECTED
TO AVERAGE THE COSTS OF THESE GOODS
4.5 Verification of the Period Elected By the Producer

4.6 Comparison and Reconciliation of the Submission of RVC Information
5. INITIAL ANALYSIS OF THE RVC INFORMATION
6. PLANT TOUR
7. REVIEW OF MANAGEMENT OF INFORMATION SYSTEM
8. NON-QUALIFYING OPERATIONS
8.1 Non-qualifying Production/Assembly Operations
8.2 Non-qualifying Pricing Practices
8.3 Conclusion
10. LIST OF MATERIALS USED TO CALCULATE THE VALUE OF MATERIALS

IN THE RVC CALCULATION
11. TARIFF CLASSIFICATION
11.1 General
11.2 Classification of the Finished Goods and Intermediate Materials (IM?s)
11.3 Classification of Materials for Tariff Classification Change Requirement Only
11.4 Classification of all Potential Traced Materials (Materials Of a Tariff
Provision Listed in Schedule IV of the Regulations) Used or Incorporated in the
Good
12. SOURCE OF MATERIALS
12.1 Tariff Classification Change Analysis
12.2 Source of Materials of a Tariff Provision in Schedule IV for the Purposes of
Determining the VNM
12.3 Supplier Confirmations
12.4 General
13. INVENTORY MANAGEMENT SYSTEM (pgs. 55-57)
14. VALUE OF MATERIALS (pgs. 58-68)
14.1 General
14.2 De Minimis
14.3 Value of Materials to be Included in Net Cost
14.4 Value of Non-originating Materials (Traced Materials)
14.5 Conclusion
9. BILL OF MATERIALS
16. VALUE OF OTHER COSTS THAN MATERIALS

17. ACCUMULATION
18. CALCULATION OF REGIONAL VALUE CONTENT
19. ORIGIN OF THE GOOD
20. TRANSSHIPMENT
Definitions:
Note to the Definitions: In order to assist in understanding the audit
program where ever a word or group of words are used as defined, the
word or words will appear in bold print:
Class of motor vehicles means any one of the following categories of motor
vehicles:
(a) motor vehicles provided for in any of subheadings 8701.20, tariff items
8702.10.30 and 8702.90.30 (vehicles for transport of 16 or more persons),
subheadings 8704.10, 8704.22, 8704.23, 8704.32 and 8704.90 and headings
8705 and 8706,
(b) motor vehicles provided for in any subheadings 8701.10 and 8701.30 through
8701.90,
(c) motor vehicles provided for in any tariff items 8702.10.60 and 8702.90.60
(vehicles for the transport of 15 or fewer
persons) and subheadings 8704.21 and 8704.31, and
(d) motor vehicles of any of subheading Nos. 8703.21 through 8703.90.
Complete motor vehicle assembly process means the production of a motor
vehicle from separate constituent parts, which parts include the following:
TO ENSURE THAT THE LIGHT-DUTY AUTOMOTIVE GOOD, WHERE AN

ELECTION TO AVERAGE HAS BEEN FILED, IS AN ORIGINATING GOOD IN
ACCORDANCE WITH THE NAFTA RULES OF ORIGIN REGULATIONS AND
CONSIDERING THE SPECIAL RVC CALCULATION REQUIREMENTS
INCLUDED IN SECTION 9 (LIGHT-DUTY AUTOMOTIVE GOODS), SECTION
11 (MOTOR VEHICLE AVERAGING), SECTION 12 (LIGHT-DUTY
AUTOMOTIVE GOODS, PARTS AVERAGING) AND SECTION 13 (SPECIAL
RVC REQUIREMENTS) OF THE NAFTA RULES OF ORIGIN REGULATIONS.
(a) a structural frame or unibody,

(b) body panels,
(c) an engine, a transmission and a drive train,
(d) brake components,
(e) steering and suspension components,
(f) seating and internal trim,
(g) bumpers and external trim,
(h) wheels, and
(i) electrical and lighting components.
First prototype means the first motor vehicle that
Floor pan of a motor vehicle means a component, comprising a single part or

two or more parts joined together, with or without additional stiffening members,
that forms the base of a motor vehicle, beginning at the firewall or bulkhead of
the motor vehicle and ending
(a) where there is a luggage floor panel in the motor vehicle, at the place where
that
luggage floor panel begins, and
(b) where there is no luggage floor panel in the motor vehicle, at the place where
the passenger compartment of the motor vehicle ends.
Light-duty automotive good means a light-duty vehicle or a good of a tariff
provision listed in Schedule IV that is subject to a RVC requirement and is for
use as original equipment in the production of a light-duty vehicle.
Light-duty vehicle means a motor vehicle provided for in tariff items 8702.10.60
and 8702.90.60 (vehicles for transport of 15 or fewer persons) and subheadings
8703.21 through 8703.90, 8704.21 and 8704.31.
Marque means a trade name used by a marketing division of a motor vehicle
assembler that is separate from any other marketing division of that motor
vehicle assembler.
Model line means a group of motor vehicles having the same platform or model
name.
Model name means the word, group of words, letter, number or similar
designation assigned to a motor vehicle by a marketing division of a motor
vehicle assembler
(a) is produced using tooling and processes intended for the production of motor
vehicles offered for sale, and
(b) follows the complete motor vehicle assembly process in a manner not
specifically designed for testing purposes.
(a) to differentiate the motor vehicle from other motor vehicles that use the same
platform design,
(b) to associate the motor vehicle with other motor vehicles that use different
platform designs, or
(c) to denote a platform design.
Motor vehicle assembler means a producer of motor vehicles and any related
person with whom, or joint venture in which, the producer participates with
respect to the production of motor vehicles.
New building means a new construction to house a complete motor vehicle
assembly process, where that construction includes the pouring or construction
of a new foundation and floor, the erection of a new frame and roof, and the
installation of new plumbing and electrical and other utilities.
(a) a good of a tariff provision listed in Schedule IV, or

(b) an automotive component assembly, automotive component, sub-component
or listed material.
Plant means a building, or buildings in close proximity but not necessarily
contiguous, machinery, apparatus and fixtures that are under the control of a
producer and are used in the production of any of the following:
(a) light-duty vehicles and heavy-duty vehicles,
(b) goods of a tariff provision listed in Schedule IV, and
(c) automotive component assemblies, automotive components, sub-components
and listed materials.
Platform means the primary load-bearing structural assembly of a motor vehicle
that determines the basic size of the motor vehicle, and is the structural base that
supports the driveline and links the suspension components of the motor vehicle
for various types of frames, such as the body-on-frame or space-frame, and
monocoques.
Refit means a closure of a plant for a period of at least three consecutive
months that is for purposes of plant conversion or retooling.
4009
4010.10
4011
Original equipment means a material that is incorporated into a motor vehicle

before the first transfer of title or consignment of the motor vehicle to a person
who is not a motor vehicle assembler, and that is
4016.93.10
4016.99.30 and 4016.99.55
7007.11 and 7007.21
7009.10
8301.20
8407.31
8407.32
8407.33
8407.34.05, 8407.34.15, and 8407.34.25
8407.34.35, 8407.34.45 and 8407.34.55
8408.20
8409
8413.30
8414.59.30
8414.80.05
8415.81 through 8415.83
8421.39.40
8481.20, 8481.30 and 8481.80
8482.10 through 8482.80
8483.10 through 8483.40
8483.50
8501.10
8501.20
8501.31
8501.32.45
8507.20.40, 8507.30.40, 8507.40.40 and 8507.80.40
8511.30
8511.40
8511.50
8512.20
8512.40
8519.91
8527.21
8527.29
8536.50
8536.90
8537.10.30
8539.10
8539.21
8544.30
8706
8707
8708.10.30
8708.21
8708.29.20
8708.29.10
Size category, with respect to a light-duty vehicle, means that the total of the
interior volume for passengers and interior volume for luggage is
(a) 85 cubic feet (2.38 m?) or less,
(b) more than 85 cubic feet (2.38 m?) but less than 100 cubic feet (2.80 m?),
(c) 100 cubic feet (2.80 m?) or more but not more than 110 cubic feet (3.08 m?),
(d) more than 110 cubic feet (3.08 m?) but less than 120 cubic feet (3.36 m?), or
(e) 120 cubic feet (3.36 m?) or more.
Traced material means a material, produced outside the territories of the
NAFTA countries, that is imported from outside the territories of the NAFTA
countries and is, when imported, of a tariff provision listed in Schedule IV.
Underbody means the floor pan of a motor vehicle.
LIGHT-DUTY AUTOMOTIVE GOODS WHERE THE COMPANY HAS
ELECTED TO AVERAGE THE COSTS OF THESE GOODS
To ensure that the good is a light-duty automotive good and the company has
elected to average the sum of the net costs incurred and the sum of the values of
8708.29.15
8708.39
8708.40
8708.50
8708.60
8708.70.05, 8708.70.25 and 8708.70.45
8708.80
8708.91
8708.92
8708.93.15 and 8708.93.60
8708.94
8708.99.03, 8708.99.27 and 8708.99.55
8708.99.06, 8708.99.31 and 8708.99.58
8708.99.09, 8708.99.34 and 8708.99.61
8708.99.12, 8708.99.37 and 8708.99.64
8708.99.15, 8708.99.40 and 8708.99.67
8708.99.18, 8708.99.43 and 8708.99.70
8708.99.21, 8708.99.46 and 8708.99.73
8708.99.24, 8708.99.49 and 8708.99.80
9031.80
9032.89
9401.20
non-originating materials used by the producer in accordance with subsections

11(1), 12(1) or 13(4).
a) Determine whether the good is classified in one of the tariff provisions listed in
the definition of a light-duty vehicle and the producer has filed an election to
average the sum of the net costs incurred and the values of non-originating
materials in accordance with subsections 11(1) or 13(4) of the Regulations. If so,
this verification program is applicable.
the producer has elected to average the sum of the net costs incurred and the
values of non-originating materials in accordance with subsection 12(1) of the
Regulations. If so, this verification program is applicable.
c) Conclude on the verification sub-objective.
NOTE: If the good is a light-duty automotive good but the producer has not
elected to average the sum of the net costs incurred and the values of nonoriginating materials in accordance with subsection 11(1), 12(1) or 13(4) of the
Regulations, use the Light-Duty Automotive Goods (Non-Averaged)
LIGHT-DUTY AUTOMOTIVE GOODS WHERE THE COMPANY HAS
If the good is a heavy-duty automotive good and the producer has elected to
materials in accordance with subsections 11(1), 12(1) or 13(4) of the
Regulations, use the Heavy-Duty Automotive Goods (Averaged) verification
program.
If the good is a heavy duty automotive good but the producer has not elected to
materials in accordance with subsection 11(1), 12(1) or 13(4) of the Regulations,
use the Heavy-Duty Automotive Goods (Non-Averaged) verification program.
If the good is not a light-duty automotive good nor a heavy-duty automotive
good, then the general verification programs found in Chapter 5 of the NAFTA
audit manual are applicable.
b) If the good is:

i) of a tariff provision listed in Schedule IV,
ii) subject to a RVC requirement, and
iii) for use as original equipment in the production of a light-duty vehicle; and
2. RVC percentage requirements for LIGHT-DUTY AUTOMOTIVE GOODS

To ensure that the appropriate RVC percentage requirement is used by the
producer to determine whether the light-duty vehicles or a good of any of
heading nos. 84.07 and 84.08 and subheading No. 8708.40, that is for use in a
light-duty vehicle qualify as originating as set out in subsections 13(1) or (2) of
the NAFTA Rules of Origin Regulations.
2.1 RVC Percentage Requirement for A Good of A Tariff Provision Listed in

Schedule IV, that is Subject to a Regional Value Content Requirement and
is for Use in a Light-Duty Vehicle, Except for A Good of Any of Heading
Nos. 8407 and 8408 and Subheading No. 8708.40 or any of Subheading
Nos. 8482.10 through 8482.80, 8483.20 and 8483.30.
a) Determine if the fiscal year of the producer starts before July 2, 1997. If so, the
RVC requirement is 50%.
b) Determine if the fiscal year of the producer starts after July 1, 1997 but before
July 2, 2001. If so, the RVC requirement is 55%.
c) Determine if the fiscal year of the producer starts after July 1, 2001. If so, the
2.2 RVC Percentage Requirements for Light-Duty Vehicles or A Good of
Any of Heading Nos. 8407 and 8408 and Subheading No. 8708.40, that is for
use in a Light-Duty Vehicle
d) Determine if the fiscal year of the producer starts before July 2, 1997. If so, the
e) Determine if the fiscal year of the producer starts after July 1, 1997 but before
f) Determine if the fiscal year of the producer starts after July 1, 2001. If so, the
RVC requirement is 62.5%.
Note: If the good cannot be identified below, the special RVC percentage
requirements do not apply to it and the requirements of Schedule I are
applicable.
2.3 Special RVC Requirements for Light-Duty Vehicles Produced in a New

Plant
g) Determine if the plant in which the light-duty vehicles are produced consists
of or includes a new building in which the light-duty vehicles are assembled.
h) Determine if the light-duty vehicles produced meet the definition of first
prototype.
i) Determine the date of production of the first prototype and whether or not it
has been five years since the date on which the first prototype has been
produced. If it has been greater than five years after the date on which the first
prototype was produced, use the appropriate RVC requirements as identified in
verification procedures d) through f).
i) class of motor vehicle,

ii) marque,
iii) size category, or
iv) type of underbody,
that was not previously produced by the motor vehicle assembler in the
territory of any of the NAFTA countries.
k) For the purposes of determining the value of machinery that was never
previously used for production, and that is used in the new building or buildings
for the purposes of the complete motor vehicle assembly process with
respect to that vehicle, obtain the motor vehicle assemblers fixed asset sub
ledger and the supporting invoices for the new machinery acquired to produce
the motor vehicle.
l) Using the information obtained in verification procedure k) above review the
producer's calculation of the value of machinery to ensure that the value of
machinery that was never previously used for production, and that is used in the
new building(s) for the purposes of the complete motor vehicle assembly
process with respect to that motor vehicle, is at least 90% of the value of all
machinery used for the purpose of that process.
i) Verify that where the machinery was acquired by the producer of the motor
vehicle from another person, the value of the machinery is the cost of that
machinery that is recorded on the books of the producer.
ii) Verify that where the machinery was used previously by the producer of the
j) Determine if the light-duty vehicle is of a:
motor vehicle in the production of another good, the value of machinery is the
cost of the machinery that is recorded on the books of the producer minus
accumulated depreciation of that machinery that is recorded on those books.
iii) Verify that where the machinery was produced by the producer of the motor
vehicle, the value of the machinery is the total cost incurred with respect to that
machinery, calculated on the basis of the costs that are recorded on the books of
the producer.
m) Conclude as to whether all the conditions outlined in verification procedures
g) through l) are met. If so, the RVC requirement is not less than 50% for five
years after the date on which the first prototype is produced in the plant by the
motor vehicle assembler. The RVC requirements outlined in verification
procedures d) through f) apply for the periods following this five year time frame.
n) Determine if the plant in which the light-duty vehicles are produced meets
the definition of refit.
o) Determine if the light-duty vehicles produced meet the definition
of first prototype.
p) Determine the date of production of the first prototype and whether or not it
has been two years since the date on which the first prototype has been
produced. If greater than two years after the date on which the first prototype
was produced, use the appropriate RVC requirements for light-duty automotive
goods as identified in verification procedures d) through f).
q) Determine if the light-duty motor vehicle is of a:
ii) marque,
that was not assembled by the motor vehicle assembler in the plant before the
refit.
r) Conclude as to whether the conditions outlined in verification procedures n)
through q) are met. If so, the RVC requirement is not less than 50% for two years
after the date on which the first prototype is produced in the plant by the motor
vehicle assembler. The RVC requirements outlined in verification procedures d)
through f) apply for the periods following this two year time frame.
2.5 Special RVC Requirements for Light-Duty Vehicles Produced in a Refit

Plant

s) Conclude on the verification sub-objective.
To ensure that the producer of light-duty motor vehicles who has filed an election
to average has properly determined the goods to be used to determine the sum
of the net costs and the sum of the values of non-originating materials (VNM) that
are used in the calculation of the regional value content (RVC) as set out in the
3.1 Identification of election to average
a) Obtain the appropriate Motor Vehicle Averaging Election filed under
subsection 11(1) or subsection 13(4) of the NAFTA Rules of Origin Regulations
for the period under review as filed with the Customs Administration conducting
the verification.
i) Confirm that the election has been accepted within the required time frames.
ii) Ensure that the models of motor vehicles identified on the certificate of origin
are included in the election to average.
iii) Identify the averaging provisions elected by the producer.
3.2 Identification of the motor vehicles produced by the motor vehicle
assembler which should be included in the election to average
b) If the category under paragraphs 11(5)(a) or 13(7)(a) of the NAFTA Rules of
Origin Regulations, identify
i) the model line of all motor vehicles produced in the plant for which the
election is made,
ii) the class of motor vehicle for all motor vehicles produced in the plant for
which the election is made.
Note: Some of these procedures require information contained in the

classification of the finished goods Section of the 11. TARIFF CLASSIFICATION
verification subprogram.
c) If the category under paragraph 11(5)(b) or paragraph 13(7)(b) of the NAFTA

Rules of Origin Regulations is chosen, identify the class of motor vehicle for all
motor vehicles produced in the plant for which the election is made.
d) If the category under paragraph 11(5)(c) of the NAFTA Rules of Origin
Regulations is chosen, identify the model line of all motor vehicles produced in
the territory of the NAFTA country.
3.3 Comparison and reconciliation of the submission of RVC information to
the election filed under Section 11 - Motor Vehicle Averaging
Compare the motor vehicles whose costs are being averaged in the submission
to the motor vehicles whose costs should be averaged based on the filed election
to average.
i) If the category under paragraph 11(5)(a) of the NAFTA Rules of Origin
Regulations has been chosen, ensure that:
A) the model line identified on the filed election to average is the same as the
model line of the vehicles whose costs are included in the RVC calculation and
all vehicles whose costs are included in the RVC calculation are in the same
model line and the costs associated with all motor vehicles in that model line
are included in the RVC calculation, and
B) the class of motor vehicle identified on the filed election to average is the
same as the class of motor vehicles whose costs are included in the RVC
calculation and the model line identified in verification procedure f)i)A) is within
the same class of motor vehicle and the costs associated with all motor
vehicles in that model line in that class of motor vehicle are included in the
RVC calculation, and
C) the plant identified on the filed election to average is the same as the plant
which produces the motor vehicles whose costs are included in the RVC
calculation and the class of motor vehicle identified in verification procedure
Ensure that: 1) the category or basis of calculation as stated in the election filed
with our customs administration have not been modified in any way in the
calculation of the actual RVC; and 2) all vehicles that should be included based
on the category and basis of calculation identified in the election, are in fact
included in the averaging calculation. (The results of this section will be used as
the basis for the remaining verification sub-programs)
e) Determine if the averaging category, identified in verification procedures b) , c)
or d) used by the motor vehicle assembler to prepare the submission of RVC
information is the same as the one on the filed election to average. Identify any
differences.
f) Determine the motor vehicles whose costs are included in the submission of
the RVC information.
f)i)B) is all produced within the same plant and the costs associated with all
motor vehicles in that model line of motor vehicle in that class of motor vehicle
in that plant are included in the RVC calculation.
ii) If a category under paragraph 11(5)(b) of the NAFTA Rules of Origin
Regulations has been chosen, ensure that
A) the class of motor vehicle identified on the filed election to average is the
calculation and the costs associated with all motor vehicles that are within the
same class of motor vehicle are included in the RVC calculation, and
iii) If the category under paragraph 11(5)(c) of the NAFTA Rules of Origin
the model line identified on the filed election to average is the same as the
model line of the motor vehicles whose costs are included in the RVC
calculation and all motor vehicles whose costs are included in the RVC
calculation are in the same model line and the costs associated with all motor
vehicles produced in the territory of a NAFTA country in that model line are
included in the RVC calculation.
g) Ensure that the basis of calculation actually used by the producer is the same
as the one on the election.
i) If the basis under paragraph 11(9)(a) has been elected as identified in
verification procedure a), and using the results of verification procedures b), c), or
d) as applicable, ensure that all motor vehicles that fall within the category
chosen and are produced (for domestic use and for exportation) in the period
elected are included in the RVC calculation.
ii) If the basis under paragraph 11(9)(b) has been elected as identified in
verification procedure a), and using the results of verification procedures b), c), or
d), ensure that all those motor vehicles exported to the territory of one or more of
the NAFTA countries that fall within the category chosen and are produced in the
period elected are included in the RVC calculation.
B) the plant identified on the filed election to average is the same as the plant
f)ii)A) is produced within the same plant and the costs associated with all motor
vehicles in that class of motor vehicle in that plant are included in the RVC
calculation.
h) Ensure that the period identified on the filed election to average is the same as
the period used to calculate the RVC. This should be the producer?s fiscal year.
How does this compare to the period defined in the Certificate(s) of Origin?
3.4 Comparison to the election filed under subsection 13(4) - Special RVC
Requirements for Vehicles Produced in a New or Refit Plant
i) Determine the averaging category, as identified in the NAFTA Rules of Origin

Regulations, used by the motor vehicle assembler to prepare the submission of
RVC information. Ensure that the category actually averaged in the submission is
the same as the one on the filed election to average.
j) Determine the motor vehicles whose costs are included in the RVC calculation
in the submission.
Compare the motor vehicles whose costs are being averaged in the submission
to the motor vehicles whose costs should be averaged based on the filed election
to average.
i) If a category under paragraph 13(7)(a) has been chosen, ensure that
model line and the costs associated with all motor vehicles in that model line
are included in the RVC calculation, and
calculation and the model line identified in verification procedure j)i)A) is within
the same class of motor vehicle and the costs associated with all motor
vehicles in that model line in that class of motor vehicle are included in the
with our customs administration have not been modified in any way in the
on the category and basis of calculation identified in the election are in fact
included in the averaging calculation. (The results of this section will be used as
the basis for the remaining verification sub-programs )
j)i)B) is all produced within the same plant and the costs associated with all
motor vehicles in that model line of motor vehicle in that class of motor vehicle
in that plant are included in the RVC calculation.
ii) If a category under paragraph 13(7)(b) has been chosen, ensure

l) Ensure that the period identified on the filed election to average is the same as
the period used to calculate the RVC. Ensure that the period is in accordance
with subsection 13(4). How does this compare to the period defined in the
Certificate(s) of Origin?
m) Conclude as to whether the averaging provisions defined by the election to
average have been applied correctly.
n) Prepare adjustments as required.
j)ii)A) is produced within the same plant and the costs associated with all motor
calculation.
k) Ensure that the basis of calculation actually used by the producer is the same
i) If the basis under paragraph 13(8)(a) has been elected as identified in
verification procedure a), and using the results of verification procedures b) or c),
as applicable, ensure that all motor vehicles that fall within the category chosen
that are produced (for domestic use and for exportation) in the period elected are
ii) If the basis under paragraph 13(8)(b) has been elected as identified in
verification procedure a), and using the results of verification procedures b) or c),
as applicable, ensure that all those motor vehicles exported to the territory of one
or more of the NAFTA countries that fall within the category chosen and are
produced in the period elected are included in the RVC calculation.
To ensure that the automotive parts producers who have elected to average their
net costs and values of non-originating materials have properly determined the
goods to be used to determine the sum of the net costs and the sum of the
values of non-originating materials (VNM) that are used in the calculation of the
regional value content (RVC) as set out in the NAFTA Rules of Origin
Regulations.
Note 2: Some of these procedures require reference to the verification

procedures performed in the 11.2 Classification of the Finished Goods section of
the 11. TARIFF CLASSIFICATION verification sub-program.
a) Refer to the 2. RVC Percentage Requirements for Light-Duty Automotive
Goods in order to ensure that the correct regional value content percentage is
being applied.
b) If the good is of a provision listed in Schedule IV of the Regulations, inquire
as to whether the producer is electing to calculate the sum of the net costs
incurred and the sum of the non-originating materials used by the producer of the
goods in accordance with section 12 of the Regulations. If so, this program is
applicable, otherwise use the light-duty automotive goods non-averaged
verification program (where the goods are of a provision listed on Schedule IV of
the Regulations, subject to a regional value-content requirement and are for use
as original equipment in the production of a light-duty vehicle).
i) Determine the models of goods by part number included in the automotive
parts averaging election. Obtain this information in writing from the company.
ii) Using the information obtained in the 11. TARIFF CLASSIFICATION
verification sub-program, ensure that all part numbers of the models identified in
Note 1: The following verification sub-program only applies where the company
has notified the Customs Administration in writing during the course of the
verification of their election to average under section 12 of the NAFTA Rules of
Origin Regulations. If the Customs Administration has not been notified in writing
during the course of the verification that an election to average under section 12
of the NAFTA Rules of Origin Regulations has been made, the light-duty
automotive goods (non-averaged) verification programs are applicable. If the
company has elected to average under subsections 11(1) or 13(4) of the NAFTA
Rules of Origin Regulations use the 3. MOTOR VEHICLE AVERAGING
ELECTION verification sub-program.
i) are of the same tariff provision listed in Schedule IV.

iii) Compare the part numbers of the models under review to the certificate of
origin to ensure that any or all models or part numbers are included in the
automotive parts averaging election.
iv) Identify the averaging provision (i.e. category and period) elected by the
producer. Obtain this information in writing from the company.
v) Where the automotive parts producer chooses a one or three month period,
determine if the producer has, at the end of the fiscal year of the motor vehicle
producer to whom the goods are sold, chosen the fiscal year of that motor
vehicle producer.
4.2 Identification of the goods included in the automotive parts averaging
election
d) If the category under 12(4)(b) of the Regulations is chosen, ensure that the
goods are original equipment for use in the production of heavy-duty vehicles,
and this program is not applicable. Refer to the 4. AUTOMOTIVE PARTS
AVERAGING verification sub-program in the HEAVY-DUTY AUTOMOTIVE
GOODS (AVERAGED) verification program.
e) If the category under 12(4)(c) of the Regulations is chosen, ensure that the
goods are after-market parts, and this program is not applicable. Refer to the
applicable verification programs found in Chapter 5 of the audit manual.
f) If the category under 12(4)(d) of the Regulations is chosen, ensure that the
goods are original equipment for use in the production of light-duty vehicles in
combination with original equipment for use in the production of heavy-duty
vehicles, or after-market parts.
g) If the category under 12(4)(e) of the Regulations is chosen, ensure that the
goods are any of the following:
i) original equipment for use in the production of light-duty vehicles and are
sold to one or more motor vehicle producers; or
ii) original equipment for use in the production of light-duty vehicles in
vehicles, or after-market parts and are sold to one or more motor vehicle
producers.
c) If the category under paragraph 12(4)(a) of the Regulations is chosen by the

producer, ensure that the goods are original equipment for use in the
production of light-duty vehicles.
h) If the category under 12(4)(f) of the Regulations is chosen, ensure that the
exported to the territory of one or more of the NAFTA countries;

4.3 Identification of the motor vehicle producer included in the automotive
parts averaging election
j) If the category under 12(4)(a) of the Regulations is elected, where the goods
are:
i) original equipment for use in the production of light-duty vehicles:
A) Determine the motor vehicle producer(s) included in the averaging election;
B) Determine if all motor vehicle producer(s) have the same fiscal year end(s).
C) Confirm the sales of the parts to the producer(s) to ensure the goods identified
in c) have all been accounted for;
k) If the category under 12(4)(d) of the Regulations is elected, where the goods
are:
i) original equipment for use in the production of light-duty vehicles in
motor vehicles, or after-market parts:

vehicles, or after market parts and are exported to the territory of one or more of
the NAFTA countries;
iii) original equipment for use in the production of light-duty vehicles and are
sold to one or more motor vehicle producers and are exported to the territory of
one or more of the NAFTA countries; or
iv) original equipment for use in the production of light-duty vehicles in
producers and are exported to the territory of one or more of the NAFTA
countries.
i) If the verification encompasses reviewing all goods of a tariff provision
produced by the producer, ensure that all goods are included in an averaging
category. Similarly, if the verification encompasses specific goods of the same
tariff provision, ensure that only those goods are included in an averaging
category.

B) Determine if all motor vehicle producer(s) have the same fiscal year end(s).
in c) have all been accounted for;
l) If the category under 12(4)(e) of the Regulations is elected, where the goods
are:
sold to one or more motor vehicle producers:
B) Determine if all motor vehicle producer(s) included in the election to average
have the same fiscal year end;
in c) have all been accounted for; or
producers:
in c) have all been accounted for.
m) If the category under 12(4)(f) of the Regulations is elected, where the goods
are:
one or more of the NAFTA countries:
in c) have all been accounted for; or
countries:
in c) have all been accounted for.
n) If the category under 12(4)(f) of the Regulations is chosen, if the goods are:
exported to the territory of one or more of the NAFTA countries:
A) Determine the territory of one or more NAFTA countries the goods included in
the averaging calculation have been exported to;
B) Confirm the amount of goods exported outside the territory of the Party in
which the production occurred, to ensure the quantity of goods included in the
averaging calculation is correct;
vehicles, or after market parts and are exported to the territory of one or more of
the NAFTA countries:
the averaging calculation have been exported to.
iii) original equipment for use in the production of light-duty vehicles and are
4.4 Identification of the country(s) of export included in the automotive

parts averaging election
iv) original equipment for use in the production of light-duty vehicles in
countries:
4.5 Verification of the period elected by the producer

o) If the category under paragraph 12(4)(a) of the Regulations is chosen, ensure
that the period elected is calculated over any month, any consecutive three
month period that is evenly divisible into the number of months of the producer's
fiscal year remaining at the beginning of the period, or the fiscal year of the motor
vehicle producer to whom those goods are sold only if all producer(s) have the
same fiscal year end.
i) By means of industry reports or enquiries in writing, confirm the fiscal year(s) of
the motor vehicle producer(s) to whom the goods are sold.
ii) Where the producer chooses a one or three month period, ensure that the
same duration is chosen for:
A) the remainder of the fiscal year of the motor vehicle producer to whom those
goods are sold, where the automotive parts producer has changed the period to
the fiscal year of the motor vehicle producer to whom the goods are sold as
identified in verification procedure b); or
B) the remainder of the fiscal year of the automotive parts producer where such
producer did not change the period to the fiscal year of the motor vehicle
producer to whom those goods are sold.
p) If the category under paragraph 12(4)(d) of the Regulations is chosen and
some of the goods are light-duty automotive goods, ensure that the period
elected is calculated over any month, any consecutive three month period, or the
fiscal year of the motor vehicle producer to whom those goods are sold only if all
producer(s) have the same fiscal year end.
averaging calculation is correct.
i) By means of industry reports or enquiries in writing, confirm the fiscal year(s) of

I) the remainder of the fiscal year of the motor vehicle producer to whom those goods are sold,
where the automotive parts producer has changed the period to the fiscal year of the motor
vehicle producer to whom the goods are sold as identified in verification procedure b); or
II) the remainder of the fiscal year of the automotive parts producer where such producer did not
change the period to the fiscal year of the motor vehicle producer to whom those goods are sold.
ii) If the category under paragraph 12(4)(e) of the Regulations is chosen and the goods are
original equipment for use in the production of light-duty vehicles in combination with original
equipment for use in the production of heavy-duty vehicles, or after-market parts and are sold to
one or more motor vehicle producers ensure that the period elected is calculated on any month,
any consecutive three month period, or the fiscal year of the motor vehicle producer(s) to whom
the goods are sold.
A) By means of industry reports or enquiries in writing, confirm the fiscal year(s) of the motor
vehicle producer(s) to whom the goods are sold.
B) Where the producer chooses a one or three month period, ensure that the same duration is
chosen for:
r) i) If the category under paragraph 12(4)(f) of the Regulations is chosen and the goods are only
original equipment for the use in the production of light-duty vehicles and are exported to the
territory of one or more NAFTA countries, ensure that the period elected is calculated on any
month, any consecutive three month period or the fiscal year of the motor vehicle producer(s) to
whom the goods are sold.
identified in verification procedure b); or
producer did not change the period to the fiscal year of the motor vehicle
producer to whom those goods are sold.
q) i) If the category under paragraph 12(4)(e) of the Regulations is chosen and
the goods are only original equipment for the use in the production of lightduty vehicles and are sold to one or more motor vehicle producers, ensure that
the period elected is calculated on any month, any consecutive three month
period, or the fiscal year of the motor vehicle producer(s) to whom the goods are
sold.
A) By means of industry reports or enquiries in writing, confirm the fiscal year(s)
of the motor vehicle producer(s) to whom the goods are sold.
B) Where the producer chooses a one or three month period, ensure that the
4.6 Comparison and reconciliation of the submission of RVC information

s) Ensure that the goods and period as identified in the election to average obtained in verification
procedure b) has not been modified in any way in the calculation of the actual RVC.
chosen for:
ii) If the category under paragraph 12(4)(f) of the Regulations is chosen and the goods are
equipment for use in the production of heavy-duty vehicles, or after-market parts and are
exported to the territory of one or more NAFTA countries, ensure that the period elected is
calculated any month, any consecutive three month period or the fiscal year of the motor vehicle
producer(s) to whom the goods are sold.
chosen for:
iii) If the category under paragraph 12(4)(f) of the Regulations is chosen and the goods are only
original equipment for the use in the production of light-duty vehicles, are sold to one or more
motor vehicle producers and are exported to the territory of one or more NAFTA countries,
ensure that the period elected is calculated on any month, any consecutive three month period, or
the fiscal year of the motor vehicle producer(s) to whom the goods are sold.
chosen for:
iv) If the category under paragraph 12(4)(f) of the Regulations is chosen and the goods are
equipment for use in the production of heavy-duty vehicles, or after-market parts, are sold to one
or more motor vehicle producers and are exported to the territory of one or more NAFTA
countries, ensure that the period elected is calculated on any month, any consecutive three
month period, or the fiscal year of the motor vehicle producer(s) to whom the goods are sold.
chosen for:

t) Conclude as to whether the averaging provisions defined by the election to average have been
applied correctly.
u) Prepare adjustments as required.
To conduct a preliminary review of the submitted RVC information in order to identify risks that
require further verification.
6. PLANT TOUR
a) Obtain an organization chart. Ensure all operations and or departments whose costs are
Document the potential for costs to be included in total cost that should be excluded (i.e. costs
not directly related to the production of the motor vehicles subject to averaging, sales promotion,
marketing and after-sales service costs, royalties, shipping and packing costs and non-allowable
interest costs).
b) Observe and document the existence of the goods included in the election.
i) Confirm the goods to be included in the election to average are manufactured at that production
facility.
ii) Identify other goods that should be included in the election and goods that are included but
should not be.
a) Obtain from company officials a submission of RVC information for the goods under review.
b) Review the costs provided in the submission of RVC information to determine if they are
reflective of actual costs (as opposed to estimates that would have been used in the election to
average).
c) Ensure that all calculations are correct. Ensure that the appropriate RVC percentage
requirement has been used by the company. Ensure that the good has met the RVC requirement
based on these calculations.
d) Ensure that all the non-originating materials (i.e. materials that do not meet their required rule
of origin) and materials of unknown origin have met the required tariff classification change
portion of the rule of origin.
e) Identify any materials listed on Schedule IV that are imported by the company but are
declared as originating materials.
f) Review the labor and overhead information provided. Identify any excluded costs incorrectly
g) Conduct risk analysis/ratio analysis on the total values for materials, labor and overhead in
relation to the RVC requirement.
h) Conclude on the areas of concern requiring further review.

To ensure the management of information system used to develop the regional value content
calculation is reliable and accurate.
a) Obtain the relevant information concerning the management of information system (MIS)
gathered through the plant tour. Identify the areas of concern with respect to the MIS. Consider
using the "Review of Policies, Procedures and Internal Controls Checklist" (See Appendix F) to
assist in identifying concerns.
iii) Identify any differences that may exist with respect to the tariff classification of the goods under
review.
c) Where the producer designates an intermediate material, review the assembly process and
observe the completed intermediate material (IM). This information will be used in the 15.
INTERMEDIATE MATERIAL verification sub-program.
d) Observe and document any concerns with regards to any possible non-qualifying operations
during the plant tour. This information will be used in the 8. Non-Qualifying Operations verification
sub-program.
e) Observe and document the research and development and/or engineering operations.
Document any concerns with respect to the potential allocation problems of costs not directly
related to the goods included in the averaging calculation.
Document any concerns with respect to the tariff classification of materials for which there may be
classification differences.
Document any concerns with respect to the ownership of materials.
Document any concerns with respect to the source of materials (i.e. dual sourcing, markings on
materials, fungible materials, etc.) noted during the plant tour, especially those materials listed on
Schedule IV of the NAFTA Rules of Origin Regulations.
Document any concerns with respect to the potential for costs being included in the RVC
calculation that are not directly attributable to the goods included in the averaging calculation.
Document any concerns with respect to the shipping of finished goods (i.e. any costs of shipping
and packing that may be included in the net cost calculation).
Document any concerns with respect to the inventory and turnover of finished goods.
g) Observe and document the production/manufacturing operations. Ensure each in-house
manufacturing and sub-assembly operations have been documented (i.e. stamping, engine
production, axle production, etc.)
Document any concerns with respect to the out-sourcing (sub-contracting) of
manufacturing/production or sub-assembly operations. Evaluate whether assists may be provided
to the out-sourced producers. This information will be used in the 14. VALUE OF MATERIALS
Document any concerns with respect to the potential for costs being included in the RVC
calculation that are not directly attributable to the goods included in the averaging calculation.
i) Observe and document the management of information system operations. Inquire as to the
reports, material stock reports, etc.). This information will be used in the 7. REVIEW OF
i) General Controls
D) system testing;
documentation.
A) handling errors;
C) file protection;
B) audit trail;
respect to the MIS.
c) Obtain the independent auditor's report. Review this report to assess the reliance the auditor's
placed on the MIS.
Processing (EDP) and the importance the organization places on controls within the MIS. .
C) development of standards for costing purposes (i.e. materials, labor and overhead standards).
A) how orders for motor vehicles are entered into the system
C) how production reports are generated
D) how material stock reports (i.e. KAN-BAN) and picking lists are generated
E) inventory (i.e. purchase from supplier(s), receipt, transfer to production, work-in-process,
Document how the actual costs are recorded in the system. Include a review of payments for

D) that processing is reliable, proper and authorized;
E) that unreliable, improper, and unauthorized processing is detected;
F) that unreliable, improper, and unauthorized processing is corrected;
G) that errors detected in output are properly corrected and resubmitted to data processing on a
timely basis.
To ensure that the goods do not qualify as originating because of mere dilution with water or
another substance or because of a production or pricing practice designed to circumvent the rules
of origin as set out in Chapter 4 of the NAFTA.
8.1 Non-qualifying production/assembly operations
a) During the on-site visit, interview personnel to understand the production / assembly
operations of the entire plant(s) where the goods subject to averaging are produced. Document
any concerns with respect to non-qualifying production/assembly operations.
b) Obtain and review a copy of the bill(s) of materials and any product literature for the goods that
are subject to averaging. Document any concerns with respect to non-qualifying
production/assembly operations.
c) Review the section of the 6. PLANT TOUR verification sub-program related to the nonqualifying operations. Address any concerns noted with respect to non-qualifying
d) Review documents related to transportation (consider documents obtained in the 20.
TRANSSHIPMENT verification sub-program) and document any concerns with respect to the
finished goods being altered subsequent to importation.
e) Prepare a written evaluation of the non-qualifying production / assembly operation and assess
the evidence gathered.
8.2 Non-qualifying pricing practices
f) Identify major adjustments made as a result of the 14. VALUE OF MATERIALS verification subprogram, and document any concerns.
g) Review adjustments made to the purchases accounts at the end of the year and the beginning
of the next year. Identify any concerns.
h) Prepare a written evaluation of the questionable non-qualifying pricing practice(s) and assess
the extent of the evidence gathered.
8.3 Conclusion
Note: A good shall not be considered to be an originating good where there is a preponderance
of evidence that the object of a production or pricing practice was to circumvent the Rules of
Origin. In regards to unacceptable production practices, circumvention consists of any alteration
or process performed on goods for the purpose of circumventing the rule of origin requirements.
For example, when the processing or assembling performed in the territory of another Party of the
Agreement is reversed or substantially altered after the finished goods have been imported, and
such processing or assembly was not performed for any commercial purpose other than to qualify
the goods for the NAFTA tariff treatment, then this will be considered circumvention.
i) Conclude on the verification sub-objective.

To ensure that the bill(s) of materials of the goods subject to the averaging provisions are
complete and consistent throughout the verification period.
10. LIST OF MATERIALS USED TO CALCULATE THE VALUE OF MATERIALS IN THE RVC
CALCULATION
a) Obtain all the bills of materials for the goods that should be included in the averaging
calculation (the motor vehicle averaging election for motor vehicles). (Refer to the 3. MOTOR
VEHICLE ELECTION TO AVERAGE and 11. TARIFF CLASSIFICATION verification subprograms.)
b) Verify the mathematical accuracy of the BOMs.
c) Using the information from the 7. REVIEW OF THE MANAGEMENT OF INFORMATION
SYSTEM verification sub-program, obtain the description of the system for BOM's and any
related documentation that is required to complete verification procedure f). If necessary, review
the policy and procedures manual for the BOM with respect to the definition of the BOM, use of
the BOM, what is reported on the BOM, who and when changes are made to the BOM, etc.
d) Compare the models of the bills of materials to the motor vehicle averaging election, if
applicable, to ensure they are included in the election. Identify any differences.
e) Sort the BOM's into the various models of the final good subject to averaging.
Obtain the volume of sales to the United States (and/or Canada or Mexico) for each model in
each family. Calculate the % of sales by both volume and dollar value within each model group.
Obtain the production reports for each model and compare to the volumes of sales as provided
by the company.
Document any concerns with respect to goods produced in a different period and being
sold/shipped in the period under review.
f) To ensure the BOM's are complete, select a sample of bills of materials to:
i) compare the BOM to engineering documents/specifications (i.e. compare parts and quantity to
be included in the production of the good);
ii) compare the part's numbers, descriptions and values to picking lists used to obtain parts for the
production from inventory,
iii) compare the bills of materials to product literature;
iv) review the sourcing of materials for consistency among the bills of materials
v) compare the BOM's to BOM's for similar goods (i.e. use professional judgment to ensure all
materials on the BOM are incorporated into the good and to ensure there are no missing
materials that should be incorporated into the good).
Document any differences. Obtain explanations from the client.
g) To ensure that the standard costs for materials on the BOM are consistent throughout the year:
i) review the company's standard cost accounting policies;
ii) inquire of company officials if there have been changes in the production process or the
standard costs during the year;
iii) compare a sample of the BOM's to others for the same model from a different date during the
year.
Inquire with company officials if any differences are found.
h) Conclude on the verification sub-objective.
To ensure that the list of materials used in the averaged RVC calculation for net costs and value
of non-originating materials is complete and accurate.
Note: The 9. BILL OF MATERIALS verification sub-program will have to be completed before
proceeding with these verification procedures.

VERIFICATION SUB-OBJECTIVES
To ensure that the finished good is properly classified under the Harmonized System (H.S.) of
tariff classification, and to ensure the correct rule of origin is applied.
To classify all materials which would not meet the necessary tariff classification change as
required by the specific rule of origin (Schedule I of the NAFTA Rules of Origin Regulations)
a) Obtain the listing of materials and any additional supporting documentation used by the
producer in the RVC calculation for net costs and value of non-originating materials. This listing
should contain all the materials used in the production of all the final good subject to the
averaging provisions for the period under review.
b) Verify the mathematical accuracy of the listing. Compare the totals reported on the listing to the
total value of materials included in the net cost calculation and the value of non-originating
materials in the submission of RVC information.
c) Interview the person(s) responsible for developing this listing. Inquire how the list of materials
was developed (i.e. how did the client ensure that only the materials used in the production of the
final good subject to the averaging provisions are included on the list).
Based on their response to the above, assess their knowledge of the NAFTA, the NAFTA Rules
of Origin Regulations and, specifically the motor vehicle averaging provisions, if applicable.
d) Match this listing with the general ledger and/or audited financial statements. If non-averaged
goods are also produced, ensure the materials used to produce those goods are not included in
this list.
e) Perform reasonableness tests on the list of materials such as the following:
i) using production reports and average costs, recalculate the total of the value of materials
included in the averaging calculation;
ii) select a sample of materials and recalculate the value of materials using average/standard
values.
f) Select a sample of bills of materials included in the averaging calculation and perform the
following:
i) compare the description of a sample of the materials per the BOM to the list to ensure they are
listed;
ii) using the production reports, ensure the quantity of materials on the list of materials is
appropriate.
g) Select a sample of materials from the list of materials included in the averaging calculation and
perform the following:
i) compare the description per the list of materials to the BOM to ensure they are used in the
goods to be averaged;
ii) using production reports, ensure the quantity on the list is appropriate for the materials used in
the goods to be averaged.
h) Identify any accessories, spare parts and tools, packaging materials and containers for retail
sale and packing materials and containers for shipment to be disregarded for evaluating the tariff
classification change requirement. This information will be used in the 11. TARIFF
CLASSIFICATION verification sub-program. Provide the information concerning packing
materials and containers for shipment to the person responsible for the 16. Value of Other Costs
Than Materials and 14. Value of Materials verification sub-program.
applicable to the good if they were non-originating materials.

To classify all potential traced materials (materials of a tariff provision listed in Schedule IV of
the NAFTA Rules of Origin Regulations) used or incorporated in the good in order to establish
the value of non-originating materials per Section 9 of the Regulations.
11.1 General
11.2 Classification of the finished good and intermediate materials (IMs)

e) Obtain and review documentation on the goods and IM's, e.g., bills of materials, public
brochures, engineering specifications, invoices, bills of lading, owner's manual, catalogues, and
verify if it is consistent with the tariff classifications provided for the goods under review.
Review the export documents for the Harmonized System (HS) number for the goods under
review.
f) Obtain from the 6. PLANT TOUR verification sub-program information with respect to the
production of the goods or the intermediate materials and physically inspect the goods during a
plant tour to aid in confirming the correct classification number and rule of origin of the finished
goods and IMs.
g) Identify the classification declared by the company in the RVC information, on the election to
average (if applicable) and on the NAFTA Certificate of Origin.
h) Identify the applicable rule of origin for the goods and IMs.
i) Ensure that the goods are included in the class of motor vehicles as elected by the producer
(if applicable).
j) Ensure that the goods are in the same tariff provision listed in Schedule IV as elected by the
producer (if applicable).
k) Prepare a conclusion on the tariff classification for the goods and IMs under review.
11.3 Classification of materials for tariff classification change requirement only
To be completed where the non-originating materials included in the goods under review are
required to undergo a tariff classification change.
l) Analyze the rule of origin identified in verification procedure g) of this verification sub-program
to determine the tariff classification of the materials that would not meet the required tariff
classification change if they were non-originating materials.
m) Obtain an accurate description of the materials used in the production of the goods, by
physical examination, reviewing supplier parts catalogue, purchase orders, engineering
documents and/or supplier contracts. Document any self-produced materials designated in
accordance with subsection 4(8) of the NAFTA Rules of Origin Regulations.
a) Interview the person(s) responsible for tariff classification to establish how the classifications of
the good and materials were determined.
Obtain any rulings that the company had received from other Customs Administrations.
b) Document the potential for fungible materials while performing the procedures in this
c) Obtain information from the company pertaining to the deminimus calculation when the
company has applied the deminimus provisions to qualify the goods. To evaluate deminimus,
refer to the verification procedures outlined in Chapter 5 of this audit manual.
d) For use in the 12. SOURCE OF MATERIALS verification sub-program, note the source of
materials, if you come across this information while performing the procedures in this verification
program.
n) For only the goods being exported to the country performing the verification, classify all
materials except those identified as accessories, spare parts and tools; packaging materials and
container for retail sale and packing materials and containers for shipment (obtain both the list of
materials to classify and the identification of the exceptions from the 10. LIST OF MATERIALS
USED TO CALCULATE THE VALUE OF MATERIALS IN THE RVC CALCULATION verification
sub-program) to the level required for tariff change requirement.
o) Identify those materials which would not meet the tariff change requirement if they were nonoriginating.
11.4 Classification of all potential traced materials (materials of a tariff provision listed in
Schedule IV of the Regulations) used or incorporated in the good
i) those materials that are of a tariff provision listed in Schedule IV, but do not contain any
Schedule IV sub-materials; and
ii) those materials that are of a tariff provision listed in Schedule IV, which may also contain submaterials that are of a tariff provision listed in Schedule IV. For those materials identified,
A) identify the sub-materials by examining the BOM for the sub-materials, the suppliers parts
catalogues and/or physical examination;
B) classify the sub-materials; and,
C) identify the sub-materials that are of a tariff provision listed in Schedule IV.
iii) those materials that are NOT of a tariff provision listed in Schedule IV, but which may contain
sub-materials that are of a tariff provision listed in Schedule IV. For those materials identified,
A) for the materials identified, identify the sub-materials by examining the bills of materials,
supplier parts catalogues, engineering documents, supplier contracts, and/or by physical
examination;
C) identify the sub-materials that are of a tariff provision listed in Schedule IV.
q) Repeat verification procedures o)i) through iii) as necessary to identify any sub-materials, used
or incorporated into the materials, that are of a tariff provision listed in Schedule IV.
r) Prepare a working paper to document all the identified materials, used or incorporated into the
goods subject to the averaging calculation at any level of production, that are of a tariff provision
listed in Schedule IV. Also, when applicable, group sub-materials by the material that
incorporates the sub-materials.
To determine and verify:
--the origin of all materials which would not meet the necessary tariff classification change as
required by the specific rule of origin (Schedule I of the Regulations) if the materials were nonoriginating; and
p) Using the list developed in the 10. LIST OF MATERIALS USED TO CALCULATE THE VALUE
OF MATERIALS IN THE RVC CALCULATION, (and any information concerning the potential
traced material content of intermediate materials, if applicable, from the 15. INTERMEDIATE
MATERIAL verification sub-program) obtain an accurate description of the materials by physical
examination, reviewing supplier parts catalogues, engineering documents and/or supplier
contracts (some of this reference material may have been gathered in verification procedure l) of
this verification sub-program). Identify:
--the source of all materials or sub-materials of a tariff provision listed in Schedule IV of the
Regulations, used or incorporated in the good in order to establish the value of non-originating
materials (Section 9 of the Regulations) especially the ones claimed as originating materials by
the producer or his supplier.
e) Evaluate the need to send supplier confirmations for the purposes of the origin of materials for
the tariff change requirement.
f) Conclude as to whether the tariff classification change requirement has been satisfied.
12.2 Source of materials of a tariff provision in Schedule IV for the purposes of
determining the VNM
g) Obtain the complete list of all potential traced materials (i.e., materials and submaterials of a
tariff provision listed in Schedule IV) from the CLASSIFICATION OF ALL POTENTIAL TRACED
MATERIALS USED OR INCORPORATED IN THE GOOD section of the 11. TARIFF
CLASSIFICATION verification sub-program.
h) Using the list obtained in verification procedure g) select a sample of materials and submaterials which the exporter has claimed as originating (including those materials which may
contain sub-materials) and perform the following:
i) verify if the source of the above materials could be valid, by looking at the Industry Profile
documentation, industry information and other submissions for similar goods (i.e. could these
materials be imported);
ii) interview company officials responsible for the origin of materials as found in the submission of
RVC information. Ask what procedures they used to verify the source of the materials. Document
strengths and weaknesses of the manner in which the company assigned origin to the materials;
iii) if the company has received supplier certifications to verify the source of the materials, review
them and determine if they are adequate (if not adequate these items may be considered high
risk items for confirmation purposes).
i) Obtain information from the exporter's policy and procedures manuals and complete a plant
tour to assist in identifying the source of materials. Physically inspect the materials to identify
markings or any other indications of whether or not the materials may be imported. Coordinate
this work with that in verification procedure m)ii). While conducting the plant tour and through
enquiry of management, identify any parts of the production process that may be sub-contracted
to another company.
a) Obtain the list of the materials which would not meet the tariff classification change required by
the specific rule of origin from the CLASSIFICATION OF MATERIALS FOR TARIFF CHANGE
REQUIREMENT ONLY section of the 16. TARIFF CLASSIFICATION verification sub-program.
b) Confirm the origin of these materials by reviewing the Certificate of Origin or the supplier
certification obtained by the producer or by reviewing the purchase order, invoice and the
receiving document.
c) Physically inspect these materials to verify markings or any other indications which might
indicate that the materials are non-originating.
d) Assess if the 7% De Minimis rule can be applied if there are non-originating materials that do
not meet the required tariff classification change (see verification procedure f) in the 14. VALUE
OF MATERIALS verification sub-program).
j) Review the concerns identified in the 6. PLANT TOUR verification sub-program.

k) Obtain a list of suppliers for all materials on the list obtained in verification procedure g). For
the originating materials identified in verification procedure h), determine the suppliers and
suppliers are U.S., Canadian or Mexican distributors (these suppliers will be considered high-risk
items for confirmation purposes);
ii) inquire of company officials if there were any supplier changes during the period under review
or any materials that are sourced from more than one supplier. The Approved Vendor List or the
history of the engineering specifications may provide evidence of supplier changes;
iii) determine whether there are any fungible materials. Examine the parts and supplier lists, the
supplier from a NAFTA country and from a non-NAFTA country and if they source parts from
distributors. (This information will be used in the 13. INVENTORY MANAGEMENT SYSTEM
verification sub-program.)
n) Using the list obtained in verification procedure g), select a sample of materials not claimed as
originating by the producer and determine if:
i) the materials are imported directly into the NAFTA territory by the producer, or
ii) the materials are imported into the territory by someone other than the producer, or
iii) the producer chose to identify the material as non-originating per 9)9)e) of the Regulations
If the material is imported into the territory by someone other than the producer, obtain supplier
statements for these materials.
This information will be used in the 14. VALUE OF MATERIALS verification sub-program.
o) Compare any supplier statements or certificates of origin obtained through the verification
procedures identified above to the list of materials.
p) Evaluate the need to expand sampling procedures based on the results of the testing
performed above.
q) Assess if the origin or the traced material content of any of the materials needs to be confirmed
with respect to the materials listed on Schedule IV.
r) Conclude as to whether the materials listed on Schedule IV, including the materials (and submaterials) that may incorporate sub-materials listed on Schedule IV, are originating, imported or
non-originating but not-imported (as determined by the Customs officers).
s) Judgementally select suppliers from whom supplier confirmations will be obtained: to confirm
the origin of materials listed on Schedule IV claimed to be originating; or to confirm the origin of
materials that have potential traced materials in them and claimed by the company or its
l) Using the 11. TARIFF CLASSIFICATION verification sub-program identify: 1) any materials of a
tariff provision listed on Schedule IV that had been designated as originating but were in fact
imported from outside the NAFTA territory or 2) any materials that are not of a tariff provision on
Schedule IV that are considered non-originating but were in fact imported from outside the
NAFTA territory, i.e. information from supplier catalogues and markings during the plant tour
m) Select a sample of originating materials from the list obtained in verification procedure g) and
i) scan the purchase invoice, any attached shipping documents, and bank endorsement stamp on
the canceled check to determine whether they support the exporter's claim for the source (and
value) of the material;
ii) select materials from this sample to verify markings and coordinate this work with that
performed in verification procedure j);
iii) follow up on any contradictory observations; and
iv) prepare a working paper to control this process and to document the results.
supplier to be originating (the value of the traced materials may also be the subject of this
confirmation); or to confirm the origin of materials that if found to be non-originating would not
meet the tariff change requirements in Schedule I and that have been claimed as being
originating by the company.
i) send confirmations to high risk suppliers who are distributors, or those who are known to import
parts from outside the territory, or where the reliability of the suppliers certifications on file with the
exporter/producer are questionable and for high dollar value materials;
ii) find information on the suppliers in the exporter/producer correspondence files and purchase
records, i.e. addresses, contact person, phone numbers, etc;
iii) ensure that confirmations are sent out to all suppliers of a material if there is more than one
supplier of a material or if suppliers were changed during the period under review;
iv) follow up with the supplier to obtain a completed confirmation, this may be telephone within a
predetermined time frame to ensure that all the completed confirmations are received;
Note: Confirmation for which there is no response or insufficient information will result in the
material being considered non-originating for tariff change purposes, and will be included in VNM
for the RVC calculation.
12.4 General
t) Ensure that all verification adjustments required as a result of the sourcing verification
To determine if an applicable inventory management method is in place when fungible materials
(physically separated or commingled) are used in the production of a good, or when fungible
goods are physically combined or mixed in inventory, potentially to identify the origin of a specific
shipment of the goods.
In terms of fungible materials used in the production of light-duty automotive goods, an
inventory management method must identify originating versus non-originating materials for the
purposes of the tariff classification change requirement. Also, for the purposes of the RVC
requirement, an inventory management method must, for materials that are on Schedule IV,
identify not imported versus imported materials, and for all materials that have more than one
supplier, identify the different traced sub-material values.
If an acceptable inventory management method does not exist, for the purposes of the tariff
classification change requirement, all fungible materials will be considered to be non-originating,
and, for the purposes of the RVC requirement, the total value of all fungible materials identified as
a risk above will be included in the calculation of VNM.
Note that the existence of fungible materials does not automatically require that this verification
v) review the confirmations once they are received from the suppliers and compare the
information on the confirmations with the information on the certificates filed with the exporter
and/or producer;
vi) determine if supplier confirmation letters should be sent to the suppliers of the suppliers of the
exporter and/or producer, because there are materials which require further verification (either for
origin or VNM purposes);
vii) after reviewing the supplier confirmation, consideration should be given to conducting a
restricted supplier verification at the suppliers' premises based on the evidence gathered to date.
However, such visits will have to be approved prior to making any arrangements;
viii) prepare a working paper to control the confirmation process and to document the results; and
ix) prepare a letter to each supplier subject to the confirmation process, notifying them of whether
or not the material was found to be originating.
program be applied, as the exporter/producer may choose to treat, for the purposes of the tariff
change requirement, all fungible materials as non-originating, and, for the purposes of the RVC
requirement, the total value of all fungible materials as part of VNM.
FIFO
LIFO
Average Method
d) Document the inventory management system from the beginning to end (i.e. purchasing,
receiving, storage of materials, removal of materials from storage into production of goods,
storage of goods and removal of goods from storage for shipment of goods).
e) If Specific Identification was used, ensure that fungible materials (goods) were physically
segregated, or ensure the existence of an origin identifier.
system. Ensure that the fungible materials (goods), identified by origin or supplier, as applicable,
first received were considered to be the fungible materials (goods), identified by origin or supplier,
as applicable, first withdrawn.
last received was considered to the fungible materials (goods), identified by origin or supplier, as
applicable, first withdrawn.
h) If the average method was used, ensure that the ratio was calculated and applied correctly.
i) Ensure whichever method that was chosen, including the averaging period chosen in the case
of the average method, that it was used from the time it was chosen to the end of the fiscal year.
Has the system changed since the inception of NAFTA?
j) Ensure that the company correctly determined the materials, identified by origin or by supplier,
as applicable, in its opening inventory by:
i) identifying, in the books of the producer, the latest receipts of fungible materials that add up to
the amount of fungible materials in opening inventory at the time an inventory method is chosen;
ii) reviewing the origin or supplier of the materials (goods), as applicable, that make up those
receipts;
iii) determining those fungible materials (goods) to be the fungible materials (goods) in opening
inventory, identified by origin or supplier, as applicable.
k) Review the inventory management system by performing compliance tests of a sample of
purchase transactions. The sample should include transactions involving materials (goods) that
were fungible materials (goods) at the inception of the NAFTA and materials (goods) that were
identified as fungible since the inception (i.e. change in supplier).
testing and evaluate it's effectiveness.
a) Using the information from the 12. SOURCE OF MATERIALS verification sub-program, obtain
a listing of identified fungible materials.
b) Determine the impact on the origin of the goods under review should the inventory
management system be found to be not acceptable. When fungible materials exist, evaluate the
impact in terms of the tariff classification change requirement (consider the use of the de minimis
provision) by reviewing the information obtained in the 11. TARIFF CLASSIFICATION verification
sub-program, as well as in terms of the regional value content requirement (considering
Schedule IV and materials that may contain traced sub-materials) by reviewing the information
obtained in the 14. VALUE OF MATERIALS and the 18. CALCULATION OF THE REGIONAL
VALUE CONTENT verification sub-programs. If the impact is significant, proceed with the
evaluation of the inventory management system.
c) Determine which of the following inventory management systems outlined in the NAFTA
Regulations - Schedule X the company used for the fungible materials (goods):
m) Test a sample of fungible material (good) inventories by identifying the origin of opening
inventory, adding receipts/adjustments of materials (goods) and deducting
withdrawals/adjustments and compare your results to the company's records. (Can test a variety
of periods, materials (goods) and production processes.)
n) Conclude on whether:
i) the inventory management system used by the Company meets all the requirements of
Schedule X of the Regulations (i.e. the inventory management system is acceptable); or
ii) the inventory management system used by the company requires improvement to meet the
requirements of Schedule X of the Regulations - document the weaknesses of the system document the impact on the origin of the goods under review; or
iii) the inventory management system does not meet the requirements of Schedule X and the
company can/cannot construct the necessary inventory system - document the impact on the
origin of the goods under review.
14.1 General
a) Gather any information relevant to the value of materials identified in the 10. REVIEW OF THE
MANAGEMENT OF INFORMATION SYSTEM verification sub-program. Assess the internal
controls in place to preserve the quality and accuracy of the data available by reviewing policy
and procedures manuals with respect to the purchase of materials, internal auditor's reports,
setting of standards and identification of variances and by performing a walk through of the
purchasing and receiving function and documenting the flow of information by tracing material
requisitioning, ordering, receiving and reporting, returns, accounting, and cash disbursement.
b) From discussions with the company staff, find out who is responsible for determining the
values for the materials and how the materials are valued. Is the same valuation method used for
all the materials, i.e., do they use a different method for determining the value of non-originating
materials than the value of originating materials? Are materials valued differently for NC and VNM
purposes?
c) Review the calculations prepared by the company including any supporting documentation and
supplier certifications and statements obtained by the producer. Supplier certifications and
statements should state whether the material is originating or non-originating, either with traced
materials, or, with a value of traced materials, or, with a zero value of traced materials.
Determine if the procedure used to value materials for both NC and VNM purposes is in
accordance with the Regulations.
i) Identify all assumptions made by the company.
ii) Identify all cost types included in the calculations (freight, insurance, packing and other costs
incurred in transporting, such as duties and taxes and brokers costs, including in-house broker
costs). Apply the appropriate verification procedures to the costs being examined (examine
invoices, calculations, standard costs, etc...).
iii) Identify the accounts from which the information was extracted.
iv) Determine if the values of materials are the same currency as the currency of the country in
which the person who provided the supplier statement is located. See Section 3 of the
Regulations.
v) Identify areas for further review.
To ensure that the value of originating and non-originating materials has been calculated in
accordance with NAFTA.
d) Identify all related suppliers and determine if the purchase price was affected by the
relationship and if an adjustment will be required.
i) Identify and review accounts or any documents that may pertain to material transfers and/or
transfer payments from the producer to the supplier to identify any possible assists.
ii) If materials are dual sourced, compare the purchase prices of the related and non-related
companies, e.g. obtain price list from the producer listing suppliers, prices and materials.
iii) Review correspondence between the producer and the related suppliers. Is there a possibility
of the relationship affecting the value used? Refer to Section 7, Section 9 or Schedule VIII, as
applicable, for the method of determining the correct value.
e) Inquire as to how price and usage variances are accounted for. Analyze if these variances
(actual and standard cost) are significant and adjust the value of the materials in the RVC
calculation, if necessary.
14.2 Deminimis
14.3 Value of materials to be included in net cost

g) Verify that all materials included in the net cost calculation are valued in accordance with
Section 7 of the Regulations. NOTE: the value of materials calculated in accordance with NAFTA
includes the following regardless of whether the applicable value is the customs value of the
material or the transaction value with respect to the transaction in which the producer acquired
the material:
i) freight, insurance and packing and all other costs incurred in transporting the material to the
location of the producer;
ii) duties and taxes paid or payable with respect to the materials in the territory of one or more of
the NAFTA countries, unless they were refunded or waived;
iii) customs brokerage fees (including in-house services);
iv) waste and spoilage resulting from the use of the material in the production (minus the value of
reusable scrap);
When the value is the transaction value, the following may also be added:
i) commissions, except buying commissions;
ii) elements (assists) supplied to the seller by the producer (materials; tools, dies, molds and
other indirect materials; engineering, development, artwork, design work, and plans and sketches
performed outside the country in which the producer is located)
iii) royalties;
iv) subsequent proceeds that accrue to the seller.
The value of materials to be included in net cost also includes accessories, spare parts, tools,
packaging materials and containers for retail sale.
f) Except for goods of tariff item number 8415.81 through 8415.83, if there are non-originating
materials that do not meet the required tariff classification change, verify if the value of these
materials determined in accordance with Section 7 of the Regulations is less than or equal to 7%
of the transaction value (or total cost of the good, if the transaction value is unacceptable), to see
if the de minimis rule can be applied. (see verification procedure d) in the 12. SOURCE OF
MATERIALS verification sub-program).
The value of intermediate materials, if applicable, should be obtained from the information
obtained in the 15. INTERMEDIATE MATERIAL verification sub-program.
h) Review the values of materials reported in the submission of RVC information and assess if
these amounts seem reasonable by comparison with the RVC information of a similar good.
i) Inquire into the results of the 10. LIST OF MATERIALS USED TO CALCULATE THE VALUE
OF MATERIALS IN THE RVC CALCULATION verification sub-program, and take into
consideration while conducting the value of materials verification procedures.
j) Judgementally select a sample of high risk materials for value of materials purposes. (Consider
obtaining sufficient audit coverage).
i) determine the actual price paid by the exporter/producer by tracing to the purchase invoice, the
attached shipping documents and the bank endorsement stamp on the canceled check;
ii) calculate the difference between the actual and standard cost and compare with the price
variance or variance from standard claimed by the exporter/producer; follow-up on any
substantial differences; and
iii) trace the total invoice amount to the appropriate ledgers and sub-ledgers to verify that
purchases have been recorded correctly in the exporter's/producer's books and records.
k) Verify that the value of all materials, calculated in accordance with Section 7 of the
Regulations, are included in the net cost of the goods. Ensure that the value of traced (nonoriginating) materials, determined in accordance with Section 9 of the Regulations, as set out
below, are not also added in the calculation of the net cost of the goods, as they would be double
counted. Also, ensure intermediate materials are included only once.
l) Prepare a W/P to ensure that all adjustments required for materials as a result of value of
materials verification procedures have been recorded.
m) Conclude as to whether the value of materials is correct and consistent throughout the
14.4 Value of non-originating materials (traced materials)
n) Obtain the list of traced materials and sub-materials (i.e. imported materials of a tariff
provision listed in Schedule IV) developed in the 12. SOURCE OF MATERIALS verification subprogram, and the list, and value, of the traced materials contained in the intermediate material, if
applicable, from the 15. INTERMEDIATE MATERIALS verification sub-program.
o) Judgementally select a sample of high risk traced materials (high risk in terms of VNM includes
traced materials, as well as non-traced materials that contain traced materials (except those
imported materials that are not on Schedule IV, even if they contain traced materials))and
determine, by, for example, reviewing commercial invoices, and customs invoices, and by
applying the relevant valuation methods: (Consider materiality in terms of closeness to RVC
requirement)
(High risk for value purposes would be fungible materials or those non-traced materials that if
found to be traced, or contain traced materials would make the good non-qualifying for RVC
purposes. It could also be materials that are overvalued and correctly identified as non-traced or
materials that are undervalued and correctly identified as traced, therefore creating an
overstatement of the RVC percentage.).
i) Where the producer imported the traced material and took title at time of importation the
value should be the sum of
A) the customs value of the traced material, and where not included in the customs value, any
costs identified in B) and C) below:
B) freight, insurance, packing and other costs that were incurred in transporting the traced
material to the first place at which it was received in the territory of a NAFTA country, and
C) duties and taxes paid or payable with respect to the material in the territory of one of more of
otherwise recoverable, including credit against duty or tax paid or payable, and customs
brokerage fees, including the cost of in-house customs brokerage services, incurred with respect
to the material in the territory of one or more of the NAFTA countries.
ii) Where the producer imported the traced material from outside the territories of the NAFTA
countries and does not have or take title to it at the time of importation, the value should be
the sum of
iii) Where a person other than the producer imports the traced material from outside the
territories of the NAFTA countries and that person has or takes title to the material at the time
of importation, if the producer has a statement that is signed by the person from whom the
producer acquired the traced material, whether in the form in which it was imported into the
territory of a NAFTA country or incorporated into another material, and states all the following
values, the value of the traced material should be
costs detailed in B) and C) below:
material to the first place at which it was received in the territory of a NAFTA country, and
iv) Where a person other than the producer imports the traced material from outside the
territories of the NAFTA countries and that person does not have or take title to the material
at the time of importation, if the producer has a statement that is signed by the person from
whom the producer acquired the traced material, whether in the form in which it was imported
into the territory of a NAFTA country or incorporated into another material, and states all the
following values, the value of the traced material should be
costs identified in B) and C) below:
material to the place at which it was when the producer took title in the territory of a NAFTA
country, and
C) duties and taxes paid or payable with respect to the material in the territory of one or more of
costs detailed in B) and C) below:
material to the place at which it was located when the first person in the territory of a NAFTA
country took title, and
A) the value determined in accordance with Schedule VIII (transaction value or value determined
with an alternative method), with respect to a transaction that occurs after the customs value of
the traced material was determined, and where not included in that value,
B) taxes, other than duties paid on an importation of a material from a NAFTA country, paid or
payable with respect to the material in the territory of one of more of the NAFTA countries, other
than taxes that are waived, refunded, refundable or otherwise recoverable, including credit
against tax paid or payable.
vi) Where a person other than the producer imports the traced material from outside the
territories of the NAFTA countries, and the producer acquires a material that incorporates the
traced material and the acquired material was produced in the territory of a NAFTA
country and is subject to a regional value-content requirement, if the producer has a
statement that is signed by the person from whom the producer acquired the material, and states
that the acquired material is an originating material, and also states the regional value content of
the material, the value of the material should be:
an amount equal to VM x (1 - RVC) where
VM is the value of the acquired material, determined in accordance with Subsection 9(5), with
respect to the transaction in which the producer acquired the material,
and
RVC is the regional value content of the acquired material, expressed as a decimal.
vii) Where a person other than the producer imports the traced material from outside the
territories of the NAFTA countries, and the producer acquires a material that incorporates the
traced material and the acquired material was produced in the territory of a NAFTA
v) Where a person other than the producer imports the traced material from outside the
territories of the NAFTA countries and the producer acquires the traced material or a material
that incorporates the traced material from a person in the territory of a NAFTA country who
has title to it, if the producer has a statement that is signed by the person from whom the
producer acquired the traced material or the material that incorporates it, and states all the
following values, the value of the traced material or the material that incorporates it should be
country and is subject to a regional value-content requirement, if the producer has a

statement that is signed by the person from whom the producer acquired the material, and states
that the acquired material is an originating material but does not state any value with respect to
the traced material, the value of the material should be
an amount equal to VM x (1 - RVCR) where
VM is the value of the acquired material, determined in accordance with Subsection 9(5), with
respect to the transaction in which the producer acquired the material,
and
RVCR is the regional value-content requirement for the acquired material, expressed as a
decimal.
VM x (1-RVC) or VM x (1 - RVCR) as the case may be.

Explanation: The producer receives a statement that states one amount as the value of the
material. That amount is determined by the supplier of the material in accordance with the
provisions of paragraph 9(2)(f) or 9(2)(g), as the case may be. That amount is the one the
producer will use as the value of the material.
ix) Where a person other than the producer imports the traced material from outside the
territories of the NAFTA countries and the producer does not have a statement described in
any of paragraphs 9(2)(c) to (h), the value of the traced material or any material that
incorporates it is determined in accordance with Subsection 9(5) with respect to the transaction in
which the producer acquires the traced material or any material that incorporates it.
p) Determine whether all costs incurred in transporting materials have been identified and
correctly reported (i.e. freight, insurance, packing, etc.).
i) Test the method used by the company when identifying these costs, by selecting a sample of
transactions involving purchases of material from the territory of the NAFTA countries and those
from outside the territory of the NAFTA countries.
ii) Identify any assumptions made by the company. Test these assumptions to ensure that they
are valid (i.e. if the company is using a standard cost system ensure that they follow the correct
procedures for updating or revising the standard cost values).
iii) Prepare adjustments as required as a results of this testing. (keeping in mind materiality and
risk)
viii) Where a person other than the producer imports the traced material from outside the
territories of the NAFTA countries and the producer acquires a material that incorporates that
traced material, that was produced in the territory of a NAFTA country, and for which an
amount was determined with the formula VM x (1-RVC) or VM x (1 - RVCR) (in accordance
with vi) or vii) respectively above), if the producer of the good has a statement signed by the
person from whom the producer acquired the material that states such an amount, the value of
the material should be the amount determined with the formula
q) Determine whether duty, taxes and brokerage fees with respect to the purchase and
importation of materials have been identified and correctly reported, making adjustments as
required. (keeping in mind materiality and risk)
r) Ensure that VNM is adjusted for any variances that affect traced materials values.
s) Verify that values for all the traced materials are included in the Value of Non-originating
Materials (VNM) calculation.
t) If the company included other non-originating materials (other than traced materials) in VNM,
verify that the values of these materials are calculated in accordance with Subsection 9(5) of the
Regulations. Ensure that these materials do not contain traced materials already included in
VNM.
sufficient and appropriate evidence has been obtained to support

the conclusions made.
14.5 Conclusion
v) Conclude on the verification sub-objective.
The objective of this verification sub-program is to review any self-produced materials including
self-produced materials and containers, and self-produced accessories, spare parts and tools,
designated as an intermediate material by the producer. If intermediate materials are designated
by the company, and are found to qualify, the value of the intermediate material is considered an
originating material for RVC calculation purposes. However, intermediate materials in light-duty
automotive goods are still subject to the tracing provisions set out in Section 9 of the NAFTA
Note: For the purposes of calculating the RVC of the good, the producer of the good may
designate as an intermediate material any self-produced material that is used in the production of
the good, provided that where an intermediate material is subject to a RVC requirement, no other
self-produced material that is subject to a RVC requirement and is incorporated into that
designated self-produced material is also designated by the producer as an intermediate material.
Also, intermediate materials are goods in their own right, and must therefore meet the rule of
origin applicable to an intermediate material.
a) Document all intermediate material designations made by the company.
b) Inquire of the company officials as to how the value of the intermediate material was
calculated. Are all costs reasonably allocated to the intermediate material?
u) Prepare W/P's to support all traced materials. Ensure that
c) Ensure that material, labor, overhead costs, etc. related to the intermediate material are not
double counted in the respective costs related to the final goods.
d) Is the intermediate material a light-duty vehicle, or a good of a tariff provision listed on
Schedule IV of the Regulations, that is subject to a RVC requirement and is for use as original
equipment in the production of a light-duty vehicle?
If not, evaluate the originating status of the intermediate material using the non-automotive
verification programs contained in Chapter 5 of the audit manual. This could involve a test of the
tariff classification change or both a tariff classification change and a regional value content
requirement (using the net cost method for determining the regional value content). While
conducting these tests, note any materials that are potentially traced materials. This information
will be used in the 11. TARIFF CLASSIFICATION verification sub-program.
e) If more than one intermediate material has been identified, ensure that, where the intermediate
material is subject to a regional value content requirement, no other self-produced material
material.
f) Conclude as to whether the intermediate material is an originating material (and its traced
material content, if applicable).
g) If an intermediate material is determined to be originating, calculate the total cost in
accordance with subsection 7(6) and subsections 2(6) through 2(9) of the Regulations (i.e. all
product, period and other costs, less the costs identified in verification procedure c) of the 16.
VALUE OF OTHER COSTS THAN MATERIALS verification sub-program). This information will
be used in the 14. VALUE OF MATERIALS verification sub-program.
To verify that the other costs (labor, overhead, excluded costs, and other costs) included in the
regional value content (RVC) calculation are accounted for in accordance with the NAFTA Rules
of Origin Regulations.
a) Trace the detail of the net cost reported in the submission of RVC information to the exporter /
producer's working schedule. Trace these working schedules to the books and records.
If so, complete the 9. BILL OF MATERIALS, 10. LIST OF MATERIALS USED TO CALCULATE
THE VALUE OF MATERIALS IN THE RVC CALCULATION, 11. TARIFF CLASSIFICATION, 12.
SOURCE OF MATERIALS, 14. VALUE OF MATERIALS, 16. VALUE OF OTHER COSTS THAN
MATERIALS, and 18. CALCULATION OF THE REGIONAL VALUE CONTENT REQUIREMENT
sub-programs of the light-duty automotive goods (averaged or non-averaged, as applicable)
verification programs specifically oriented towards the intermediate material. Any traced
materials contained in the intermediate material and their value should be noted. This
information will be used in the 14. VALUE OF MATERIALS verification sub-program for the
purposes of adding into the value of non-originating materials (i.e. traced materials) of the final
good.
b) Identify the potential for sales promotion, marketing and after-sales service costs, royalty,
shipping and packing costs and non-allowable interest costs being included in the net cost of the
good. Consider whether these costs are attributable to the good, or to qualifying intermediate
materials.
c) Ensure by scanning the detail in support of the net cost values in the submission of RVC
information that period costs, product costs, and other costs incurred in the territory of one or
more of the Parties are included in the net cost figure. By breaking down the overhead and
general and administrative figures, ensure that the net cost does not include:
i) corporate or personal taxes on income;
ii) capital gains taxes, dividends, or other accounts that should be classified as assets or
reductions to income accounts;
iv) gains related to currency conversion that are related to the production of the good (losses are
added back into the net cost calculation) ;
v) costs of a service provided by a producer of a good to another person where the service is not
related to the good;
vi) gains or losses resulting from the disposition of a discontinued operation;
vii) cumulative effects of accounting changes reported in accordance with a specific requirement
of the applicable Generally Accepted Accounting Principles;
viii) gains or losses resulting from the sale of a capital asset of the producer.
d) Review the amounts of labor and overhead included in the RVC calculation. Tie these amounts
into the financial statements. Are these costs reasonably allocated to the good under review?
e) Evaluate the method(s) used to allocate common expenses to the product under review and
assess whether the methods used are consistent with the recommendations in Schedule VII of
f) Obtain copies of agreements related to sales promotions and marketing. Review the terms of
the agreements and ensure that they were properly taken into account in the net cost calculation.
g) Obtain copies of contracts related to shipping costs. Review the terms of the contracts and
ensure that they were properly taken into account in the net cost calculation.
h) Refer to the 10. LIST OF MATERIALS USED TO CALCULATE THE VALUE OF MATERIALS
IN THE RVC CALCULATION verification sub-program to identify any materials considered to be
packing materials and containers for shipment purposes. Ensure that the value for packing
materials is not included in the calculation of the net cost of the good.
iii) profits that are earned by the producer of the good, regardless of whether they are retained or
paid out to other persons as dividends;
i) Obtain copies of royalty agreements, technical assistance agreements, and other similar
documents. Review the terms of the agreements and ensure that they were properly taken into
account in the net cost calculation.
j) Obtain copies of loan agreements. Review the terms of these agreements, particularly the
interest rates charged and ensure that any non-allowable interest costs have been properly taken
into account in the net cost calculation.
k) Review the chart of accounts and the trial balance to identify those accounts included in net
cost which fall within the elements of excluded costs and conduct the following :
i) select a sample of costs and trace to supporting commercial documentation, paying particular
attention to journal voucher type entries; and
ii) where it is determined that these costs should not be included in net cost, ensure the reversal
is only for the amount originally allocated.
l) Review the chart of accounts and trial balance to identify accounts which appear to be included
costs but that the company has ignored in the net cost calculation. List these accounts for further
testing to supporting documentation and discussion with company personnel.
m) When the light-duty automotive goods are motor vehicles which are produced in a new
plant, obtain the value of machinery from the 2. RVC REQUIREMENTS FOR LIGHT-DUTY
AUTOMOTIVE GOODS verification sub- program, verification procedure l).
n) Prepare a working paper to adjust the net cost figure in the submission of RVC information for
any excluded, or not allowable costs not deducted by the exporter/producer. (Remember that
excluded costs attributable to a qualifying intermediate material remain in the calculation for the
net cost of the good.)
o) Conclude on the verification sub-objective.
17. ACCUMULATION
To ensure that the exporter/producer that chose to accumulate the production of one (or more) of
his suppliers did so in accordance with Section 14 of the NAFTA Rules of Origin Regulations.
General
For purposes of determining whether a good is an originating good, an exporter or producer of a
good may choose to accumulate the production of one or more producers, in the territory of one
or more of the NAFTA countries, of materials that are incorporated into that good so that the
production of the materials shall be considered to have been performed by that exporter or
producer, provided that:
- all non-originating materials used in the production of the good undergo an applicable tariff
classification change, and the good satisfies any applicable RVC requirement, entirely in the
territory of one or more of the Parties; and

Requirements
- In order to accumulate the production of a material,
i) where the good is subject to an RVC requirement, the producer of the good must have a
certification as described below that is signed by the producer of the material, and
ii) where an applicable change in tariff classification is applied to determine whether the good is
an originating good, the producer of the good must have a statement signed by the producer of
the material that states the tariff classification of all non-originating materials used by that
producer in the production of that material and that the production of the material took place
- any information contained in the certification that concerns the value of materials or costs shall
be in the same currency as the currency of the country in which the person who provided the
statement is located.
17. ACCUMULATION
Statement needed
Non-averaging of costs from accumulated production
Where a good is subject to a RVC requirement and an exporter or producer of the good has a
statement signed by a producer of a material that is used in the production of the good that:
a) states the net cost incurred and the value of non-originating materials used by the producer of
the material in the production of that material;
i) the net cost incurred by the producer of the good with respect to the material shall be the net
cost incurred by the producer of the material plus, where not included in the net cost incurred by
the producer of the material the costs referred to in paragraphs 7(1)(c) through (e) of the Uniform
Regulations (ie. freight, insurance, packing, transport to location of producer, duties and taxes,
customs brokerage fees); and
material shall be the value of non-originating materials used by the producer of the material
or
b) states any amount, other than an amount that includes any of the value of non-originating
materials, that is part of the net cost incurred by the producer of the material in the production of
that material,
of the material determined in accordance with subsection 7(1) of the Uniform Regulations (this is
covered in the Value of Materials section of the verification program), and
- a producer of a good who chooses to accumulate is not required to accumulate the production
of all materials that are incorporated into the good;
17. ACCUMULATION
Averaging of costs from accumulated production
Where an exporter or producer of a good does not have a statement as provided in (a) or (b)
above, but does have a statement signed by a producer of a material that is used in the
production of the good that
i) the net cost incurred by the producer of the good with respect to the material shall be the sum
of the net costs incurred by the producer of the material with respect to that material and the
identical materials or similar materials, divided by the number of units of materials with respect to
which the statement is made, plus, where not included in the net costs incurred by the producer
of the material, the costs referred to in paragraphs 7(1)(c) through (e) of the Regulations, and
material shall be the sum of the values of non-originating materials used by the producer of the
material with respect to that material and the identical materials or similar materials divided by the
number of units of materials with respect to which the statement is made;
or
d) states any amount, other than an amount that includes any of the values of non-originating
materials, that is part of the sum of the net costs incurred by the producer of the material in the
production of that material and identical materials or similar materials, or any combination thereof,
produced in a single plant by the producer of the material over a month, or any consecutive three,
six or twelve month period that falls within the fiscal year of the producer of the good, divided by
of the material, determined in accordance with subsection 7(1), and
17. ACCUMULATION
a) Determine that only the net cost method has been used to calculate the RVC requirement
where the producer has chosen to use accumulation.
c) states that sum of the net costs incurred and the sum of the values of non-originating materials
used by the producer of the material in the production of that material and identical materials or
similar materials, or any combination thereof, produced in a single plant by the producer of the
material over a month or any consecutive three, six or twelve month period that falls within the
fiscal year of the producer of the good, divided by the number of units of materials with respect to
which the statement is made,
b) Review the information received from the producer, that has accumulated the production, to
ensure that it is mathematically correct and ensure that it has been correctly included in the RVC
calculation.
In that regard, ensure that the period of time over which the information provided by the supplier
was calculated, falls within the fiscal year of the light-duty automotive goods producer.
c) Evaluate the quality of the certifications and ensure that they contain all of the required
information as stated above.
When accumulated costs are averaged, ensure that the statement includes the periods referred
to in subsection 14(3) of the NAFTA Rules of Origin Regulations, and verify that it falls within the
fiscal year of the light-duty automotive goods producer.
e) Use the following verification sub-programs (only the applicable verification procedures) in
order to evaluate the information received: 11. TARIFF CLASSIFICATION, 12. SOURCE OF
MATERIALS, 13. INVENTORY MANAGEMENT SYSTEM, 14. VALUE OF MATERIALS, 15.
INTERMEDIATE MATERIALS, and 18. CALCULATION OF REGIONAL VALUE CONTENT.
NOTE: Consideration should be given to the use of supplier confirmations and visits to the
supplier to verify the authenticity of the information reported to the exporter / producer.
18. CALCULATION OF THE REGIONAL VALUE CONTENT (RVC)
To determine whether the good satisfies the NAFTA regional value content requirement.
a) Obtain the value of all materials to be included in the net cost of the good and the value of nonoriginating materials identified in the 14. VALUE OF MATERIALS verification sub-program.
b) Add to the value of all materials to be included in the net cost, the value of other costs from the
16. VALUE OF OTHER COSTS THAN MATERIALS verification sub- program to arrive at the net
cost of the good.
c) Subtract the value of all non-originating materials from the net cost of the good.
d) Divide the difference by the net cost of the good.
e) Multiply the result obtained in verification procedure d) by 100.
f) Conclude on the verification sub-objective.
d) Ensure that the profit component of the material being accumulated is not included in the net
cost information by examining the supplier information and by comparing the price paid by the
producer to the cost information provided by the supplier, if possible.
To determine which of the goods subject to verification are originating goods under the NAFTA
a) Determine whether the goods subject to verification originate under the NAFTA by
documenting whether the tariff classification change and RVC requirements in the specific rule of
origin have been met. Refer to the 12. SOURCE OF MATERIALS and 18. CALCULATION OF
THE REGIONAL VALUE CONTENT verification sub-programs. Prepare a working paper to
document which goods originate and which do not originate under the NAFTA.
b) Conclude on the verification sub-objective.
20. TRANSSHIPMENT
a) Obtain and review copies of the invoices, bills of lading or waybills for the goods subject to
verification for a sample period. Document the shipping route and all points of shipment and
transshipment prior to the importation of the goods. Determine if the goods have been conveyed
directly on a through bill of lading from the exporter to a consignee. Consider gathering
information from the importer.
b) If the goods have not been shipped directly on a through bill of lading, they may be
transshipped through an intermediate country, provided that:
i) the goods remain under Customs transit control in the intermediate country; and
ii) the goods undergo no operations in the intermediary country other than the unloading,
reloading, or operations necessary to preserve the goods in good condition such as inspection,
removal of dust that accumulates during shipment, ventilation, spreading out or drying, chilling,
replacing salt, sulphur or other aqueous solutions, replacing damaged packing materials and
containers and removal of units of the good that are spoiled, or damaged and present a danger to
the remaining units of the good or any other operation necessary to transport the good to a
NAFTA country.
20. TRANSSHIPMENT
In order to substantiate the above, request documentation from the exporter and/or importer.
Documents include, but shall not be limited to: 1) customs receipts and release documents; 2)
exporter/ producer shipment/production records; 3) list of serial numbers or lot numbers of the
To verify that the originating good, by reason of having undergone production that satisfies the
requirements of section 4 of the NAFTA Rules of Origin Regulations, (1) is not withdrawn from
customs control outside the territories of the NAFTA countries; and (2) does not undergo 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 such as inspection,
removal of dust that accumulates during shipment, ventilation, spreading out or drying, chilling,
replacing salt, sulphur dioxide or other aqueous solutions, replacing damaged packing materials
and containers and removal of units of the good that are spoiled or damaged and present a
danger to the remaining units of the good or to transport the good to the territory of the Party.
goods; 4) temporary import and corresponding export documentation; 5) research material

explaining the non-NAFTA customs operations and procedures.
c) Determine whether any of the goods shipped were not produced by the producer. Consider the
potential for fungible goods. If fungible goods are found, refer to the 13. INVENTORY
MANAGEMENT SYSTEM verification sub-program.
From the transshipment information requested in verification procedure b) of this sub-program,
consider requesting that the exporter/producer develop a working paper which shows a
reconciliation of shipments of goods exported by the exporter/producer and imported into the
territory of the other NAFTA Party, taking into account their quantities and values.
d) Conclude on the verification sub-objective.
APPENDIX P
LIGHT DUTY AUTOMOTIVE GOODS - NON-AVERAGED

VERIFICATION PROGRAM - LIGHT-DUTY AUTOMOTIVE GOODS (NONAVERAGED)
TABLE OF CONTENTS
DEFINITIONS (Pgs. 1-5)
1. ELIGIBILITY FOR THE NAFTA RULES OF ORIGIN PROVISIONS FOR NONAVERAGED LIGHT-DUTY AUTOMOTIVE GOODS (pgs.6-7)
2. RVC PERCENTAGE REQUIREMENTS FOR LIGHT-DUTY AUTOMOTIVE
GOODS
2.1 The Staged RVC Requirement for a Good of a Tariff Provision Listed in
Schedule IV
2.2 The Staged RVC Requirement for a Vehicle and a Good of Headings 8407
and 8408 and Subheading 8708.40
2.3 Special RVC Requirements for Light-Duty Vehicles Produced in a New Plant
2.5 Special RVC Requirements for Light-Duty Vehicles Produced in a Refit Plant
4. PLANT TOUR
6.3 Conclusion
8.1 General
8.2 Classification of the Finished Goods and Intermediate Materials (IMs)
8.4 Classification of all Potential Traced Materials (Materials Of a Tariff Provision
Listed in Schedule IV of the Regulations) Used or Incorporated in the Good

11.1 General
11.2 De Minimis
11.3 Value of Materials to be Included in Net Cost
11.4 Value of Non-originating Materials (Traced Materials)
11.5 Conclusion
14. ACCUMULATION
15. CALCULATION OF REGIONAL VALUE CONTENT
17. TRANSSHIPMENT
TO ENSURE THAT THE LIGHT-DUTY AUTOMOTIVE GOOD, WHERE THERE
HAS NOT BEEN AN ELECTION TO AVERAGE, IS AN ORIGINATING GOOD IN
9.2 Source of Materials of a Tariff Provision in Schedule IV for the Purposes of
Determin ing the VNM
9.4 General

INCLUDED IN SECTION 9 (LIGHT-DUTY AUTOMOTIVE GOODS) AND
SECTION 13 (SPECIAL RVC REQUIREMENTS) OF THE NAFTA RULES OF
ORIGIN REGULATIONS.
Definitions:
Note to the Definitions: In order to assist in understanding the audit program
where ever a word or group of words are used as defined, the word or words will
appear in bold print:
"Class of motor vehicle(s)" means any one of the following categories of motor
vehicles:
b) motor vehicles provided for in any of subheadings 8701.10 and 8701.30

through 8701.90,
c) motor vehicles provided for in any of Tariff Items 8702.10.60 and 8702.90.60
(vehicles for transport of 15 or fewer persons) and subheadings 8704.21 and
8704.31, and
d) motor vehicles provided for in any of Subheadings 8703.21 through 8703.90.
"Complete motor vehicle assembly process" means the production of a motor
(a) a structural frame or unibody,
(b) body panels,
(c) an engine, a transmission and a drive train,
(d) brake components,
(e) steering and suspension components,
(f) seating and internal trim,
(g) bumpers and external trim,
a) motor vehicles provided for in any of subheading 8701.20, tariff items

8702.10.30 and 8702.90.30 (except for the transport of 16 or more persons),
subheadings 8704.10, 8704.22, 8704.23, 8704.32 and 8704.90 and headings
8705 and 8706,
(h) wheels, and

(i) electrical and lighting components.
"First prototype" means the first motor vehicle that
(a) is produced using tooling and processes intended for the production of motor
vehicles to be offered for sale, and
(b) follows the complete motor vehicle assembly process in a manner not
(a) where there is a luggage floor panel in the motor vehicle, at the place where
that luggage floor panel begins, and
(b) where there is no luggage floor panel in the motor vehicle, at the place where
"Light-duty automotive good" means a light-duty vehicle or a good of a tariff
provision listed in Schedule IV that is subject to a regional value-content
requirement and is for use as original equipment in the production of a light-duty
vehicle.
"Light-duty vehicle" means a motor vehicle provided for in any of tariff items
8702.10.60 and 8702.90.60 ( vehicles for the transport of 15 or fewer persons)
and subheadings 8703.21 through 8703.90, 8704.21 and 8704.31.
"Marque" means a trade name used by a marketing division of a motor vehicle
vehicle assembler.
"Motor vehicle assembler" means a producer of motor vehicles and any related
"New building" means a new construction to house a complete motor vehicle
"Floor pan of a motor vehicle" means a component, comprising a single part or

"Original equipment" means a material that is incorporated into a motor vehicle

(a) a good of a tariff provision listed in Schedule IV
(b) an automotive component assembly, automotive component, sub- component
or listed material
"Plant" means a building, or buildings in close proximity but not necessarily
(a) light-duty vehicles and heavy-duty vehicles,
(c) automotive component assemblies, automotive components, sub-components

"Refit" means a closure of a plant for a period of at least three consecutive
"Schedule IV of the NAFTA Rules of Origin Regulations"
4009
4010.10
4011
4016.93.10
4016.99.30 and 4016.99.55
7007.11 and 7007.21
7009.10
8301.20
8407.31
8407.32
8407.33
8407.34.05, 8407.34.15, and 8407.34.25
8407.34.35, 8407.34.45 and 8407.34.55
8408.20
8409
8413.30
8414.59.30
8414.80.05
8415.81 through 8415.83
8421.39.40
8481.20, 8481.30 and 8481.80
(b) goods of a tariff provision listed in Schedule IV, and
8482.10 through 8482.80

8483.10 through 8483.40
8483.50
8501.10
8501.20
8501.31
8501.32.45
8507.20.40, 8507.30.40, 8507.40.40 and 8507.80.40
8511.30
8511.40
8511.50
8512.20
8512.40
8519.91
8527.21
8527.29
8536.50
8536.90
8537.10.30
8539.10
8539.21
8544.30
8706
8707
8708.10.30
8708.21
8708.29.20
8708.29.10
8708.29.15
8708.39
8708.40
8708.50
8708.60
8708.70.05, 8708.70.25 and 8708.70.45
8708.80
8708.91
8708.92
8708.93.15 and 8708.93.60
8708.94
8708.99.03, 8708.99.27 and 8708.99.55
8708.99.06, 8708.99.31 and 8708.99.58
8708.99.09, 8708.99.34 and 8708.99.61
8708.99.12, 8708.99.37 and 8708.99.64
8708.99.15, 8708.99.40 and 8708.99.67
8708.99.18, 8708.99.43 and 8708.99.70
8708.99.21, 8708.99.46 and 8708.99.73
8708.99.24, 8708.99.49 and 8708.99.80

9031.80
9032.89
9401.20
"Size category", with respect to a light-duty vehicle, means that the total of the
interior volume for passengers and the interior volume for luggage is
(a) 85 cubic feet (2.38 m?) or less,
(b) more that 85 cubic feet (2.38 m?) but less than 100 cubic feet (2.80 m?),
(c) 100 cubic feet (2.80 m?) or more but not more than 110 cubic feet (3.08 m?),
(e) 120 cubic feet (3.36 m?)or more.

"Traced material" means a material, produced outside the territories of the
NAFTA countries, that is imported from outside the territories of the NAFTA
countries and is, when imported, of a tariff provision listed in Schedule IV of the
"Underbody" means the floor pan of a motor vehicle.
1. ELIGIBILITY FOR THE NAFTA RULES OF ORIGIN PROVISIONS FOR NON
AVERAGED LIGHT-DUTY AUTOMOTIVE GOODS
To ensure that the good is a light-duty automotive good.
a) Using the definition of a light-duty vehicle, determine whether the good is
classified in one of the tariff provisions listed in the definition of a light-duty
vehicle. Also verify that the producer has not filed an election to average the sum
of the net costs incurred and the values of non-originating materials in
accordance with subsections 11(1) or 13(4) of the Regulations. If so, this
verification program is applicable.
b) If the good is
i) a good of a tariff provision listed in Schedule IV of the NAFTA Rules of Origin
Regulations,
(d) more than 110 cubic feet (3.08 m?) but less than 120 cubic feet (3.36 m?), or
ii) subject to a RVC requirement, and

iii) for use as original equipment in the production of a light-duty vehicle.
and the producer has not elected to average the sum of the net costs incurred
and the values of non-originating materials in accordance with subsection 12(1)
of the Regulations.
If the good is a heavy duty automotive good, but the producer has not elected to
Regulations, use the Heavy-Duty Automotive Goods (Non-Averaged) verification
program.
If the good is a heavy-duty automotive good and the producer has elected to
Regulations, use the Heavy-Duty Automotive Goods (Averaged) verification
program.
If the good is not a light-duty automotive good nor a heavy-duty automotive good,
then the general verification programs found in Chapter 5 of the NAFTA audit
manual are applicable.

To ensure that the appropriate RVC percentage requirement is used by the
producer to determine whether the light-duty vehicle or a good of any of headings
8407 and 8408 and subheading 8708.40, that is for use in a light-duty vehicle
qualify as originating as set out in subsections 13(1) or (2) of the NAFTA Rules of
Origin Regulations.
NOTE: If the good is a light-duty automotive good but the producer has elected to
Regulations, use the Light-Duty Automotive Goods (Averaged) verification
program.
applicable.
2.1 RVC Percentage Requirement for a Good of A Tariff Provision Listed in
Schedule IV, that is Subject to a Regional Value Content Requirement and is for
Use in a Light-Duty Vehicle, Except for A Good of Any of Heading Nos 8407 and
8408 and Subheading No. 8708.40 or Any of Subheading Nos. 8482.10 through
8482.80, 8483.20 and 8483.30.
a) Determine if the fiscal year of the producer starts before July 2, 1997. If so, the
c) Determine if the fiscal year of the producer starts after July 1, 2001. If so, the
2.2 RVC Percentage Requirements for a Light-Duty Vehicle or A Good of Any of
Heading Nos. 8407 and 8408 and Subheading No. 8708.40, that is for use in a
Light-Duty Vehicle
d) Determine if the fiscal year of the producer starts before July 2, 1997. If so, the
e) Determine if the fiscal year of the producer starts after July 1, 1997 but before
f) Determine if the fiscal year of the producer starts after July 1, 2001. If so, the
2.3 Special RVC Requirements for a Light-Duty Vehicle Produced in a New Plant
g) Determine if the plant in which the light-duty vehicle is produced consists of or
includes a new building in which the light-duty vehicle is assembled.
h) Determine if the light-duty vehicle produced meets the definition of first
prototype.
i) Determine the date of production of the first prototype and whether or not it has
been five years since the date on which the first prototype has been produced. If
it has been greater than five years after the date on which the first prototype was
b) Determine if the fiscal year of the producer starts after July 1, 1997 but before
produced, use the appropriate RVC requirements as identified in verification

procedures d) through f).
j) Determine if the light-duty vehicle is of a:
ii) marque,

k) For the purposes of determining the value of machinery that was never
previously used for production, and that is used in the new building or buildings
for the purposes of the complete motor vehicle assembly process with respect to
that vehicle, obtain the motor vehicle assemblers fixed asset sub ledger and the
supporting invoices for the new machinery acquired to produce the motor vehicle.
l) Using the information obtained in verification procedure k) above review the
new building(s) for the purposes of the complete motor vehicle assembly process
with respect to that motor vehicle, is at least 90% of the value of all machinery
used for the purpose of that process.
i) Verify that where the machinery was acquired by the producer of the motor
vehicle from another person, the value of the machinery is the cost of that
machinery that is recorded on the books of the producer.
ii) Verify that where the machinery was used previously by the producer of the
motor vehicle in the production of another good, the value of machinery is the
cost of the machinery that is recorded on the books of the producer minus
accumulated depreciation of that machinery that is recorded on those books.
iii) Verify that where the machinery was produced by the producer of the motor
vehicle, the value of the machinery is the total cost incurred with respect to that
machinery, calculated on the basis of the costs that are recorded on the books of
the producer.
that was not previously produced by the motor vehicle assembler in the territory
of any of the NAFTA countries.

motor vehicle assembler. The RVC requirements outlined in verification
procedures d) through f) apply for the periods following this five year time frame.
2.5. Special RVC Requirements for a Light-Duty Vehicle Produced in a Refit
Plant
n) Determine if the plant in which the light-duty vehicle are produced meets the
definition of refit.
o) Determine if the light-duty vehicle produced meet the definition of first
prototype.
q) Determine if the light-duty vehicle is of a:

ii) marque,
that was not assembled by the motor vehicle assembler in the plant before the
refit.
through q) are met. If so, the RVC requirement is not less than 50% for two years
after the date on which the first prototype is produced in the plant by the motor
vehicle assembler. The RVC requirements outlined in verification procedures d)
through f) apply for the periods following this two year time frame.
s)Conclude on the verification sub-objective
produced. If greater than two years after the date on which the first prototype was
produced, use the appropriate RVC requirements for light-duty automotive goods
as identified in verification procedures d) through f).
To conduct a preliminary review of the submitted RVC information in order to
identify risks that require further verification.
a) Obtain from company officials a submission of RVC information for the good
under review.
b) Review the costs provided in the submission of RVC information to determine
if they are reflective of actual costs per unit (as opposed to estimates).
d) Ensure that all the non-originating materials (i.e. materials that do not meet
their required rule of origin) and materials of unknown origin have met the
required tariff classification change portion of the rule of origin.
e) Identify any materials listed on Schedule IV of the NAFTA Rules of Origin
Regulations that are imported by the company but are declared as originating
materials.
f) Review the labor and overhead information provided. Identify any excluded
costs incorrectly included in the RVC calculation. Ensure that all costs allocated
to the good subject to the verification are in fact actual costs incurred in the
production of the good on the date of its production.
g) Conduct risk analysis/ratio analysis on the total values for materials, labor and
overhead in relation to the RVC requirement.
4. PLANT TOUR
To obtain an understanding of the entire operations of the company (i.e.
manufacturing, assembly, warehouse, accounting, etc.).
c) Ensure that all calculations are correct. Ensure that the appropriate RVC
percentage requirement has been used by the company. Ensure that the good
has met the RVC requirement based on these calculations.
a) Obtain an organization chart. Ensure all operations and/or departments whose

costs are included in the total cost calculation for RVC purposes have been
reviewed and documented.
Document the potential for costs to be included in total cost that should be
excluded (i.e. costs not directly related to the production of the good subject to
the verification, sales promotion, marketing and after-sales service costs,
royalties, shipping and packing costs, and non-allowable interest costs).
Ensure that averaged costs over a period of time and allocated to the good
subject to the verification are not included.
b) Observe and document the existence of the good.
ii) Identify any differences that may exist with respect to the tariff classification of
the good under review.
c) Where the producer designates an intermediate material, review the assembly
process and observe the completed intermediate material (IM). This information
will be used in the 12. INTERMEDIATE MATERIALS DESIGNATION verification
sub-program.
d) Observe and document any concerns with regards to any possible nonqualifying operations (i.e. unacceptable production or pricing practice used to
circumvent the Rules of Origin) noted during the plant tour.
e) Observe and document the research and development and/or engineering
operations.
Document any concerns with respect to the potential allocation problems of costs
not directly related to the good under review.
f) Observe and document the warehouse operations (i.e. receiving material
inventory, storing material inventory and storing of finished goods).
i) Document any concerns with respect to the tariff classification of materials for
which there may be classification differences.
ii) Document any concerns with respect to the ownership of materials.
iii) Document any concerns with respect to the source of materials (i.e. dual
sourcing, markings on materials, fungible materials, etc.) noted during the plant
tour, especially those materials listed on Schedule IV of the NAFTA Rules of
Origin Regulations.
i) Confirm that the good is manufactured at that production facility.
iv) Document any concerns with respect to the potential for costs being included
in the RVC calculation that are not directly attributable to the good under review.
v) Document any concerns with respect to the shipping of the finished good (i.e.
any costs of shipping and packing that may be included in the net cost
calculation).
g) Observe and document the production/manufacturing operations. Ensure each
in-house manufacturing and sub-assembly operations have been documented
(i.e. stamping, engine production, axle production, etc.)
4. PLANT TOUR
Document any concerns with respect to the potential for costs being included in
the RVC calculation that are not directly attributable to the good under review.
h) Observe and document the financial accounting operations. Ensure the
materials ordering, receiving, inventory flow, direct labor costing, indirect material
costing and overhead allocation determination are all documented.
i) Observe and document the management of information system. Inquire as to
the type of management reports that are produced (i.e. bills of materials,
production reports, labor reports, material stock reports, etc.). This information
will be used in the 5. REVIEW OF MANAGEMENT OF INFORMATION SYSTEM
To ensure the management of information system used to develop the regional
value content calculation is reliable and accurate.
a) Obtain the relevant information concerning the management of information
system (MIS) gathered through the plant tour. Identify the areas of concern with
respect to the MIS. Consider using the "Review of Policies, Procedures and
Internal Controls Checklist" (See Appendix F) to assist in identifying concerns.
Document any concerns with respect to the out-sourcing (sub-contracting) of

manufacturing/production or sub-assembly operations. Evaluate whether assists
may be provided to the out-sourced producers. This information will be used in
the 11. VALUE OF MATERIALS verification sub-program.
b) Obtain and review the policies and procedures manual. Identify the areas of
concern with respect to the MIS.
c) Obtain the independent auditor's report. Review this report to assess the
reliance the auditor's placed on the MIS.
d) Interview the personnel responsible for the MIS. Assess their knowledge of
Electronic Data Processing (EDP) and the importance the organization places on
controls within the MIS. Determine whether the MIS is capable of producing
accounting information on a per unit basis.
e) Document the MIS. Use the policies and procedures manual and the
interviews with the MIS personnel as a guide.
A) engineering documents/specifications (including changes to engineering

specifications)
C) development of standards for costing purposes (i.e. materials, labor and
overhead standards).
ii) Include a review of the following to identify the costs attributable to a particular
unit:
A) how orders for motor vehicles are entered into the system
B) how production reports are generated
C) how material stock reports (i.e. KAN-BAN) and picking lists are generated
D) inventory (i.e. purchase from supplier(s), receipt, transfer to production
{inventory management method such as LIFO, FIFO, average, etc.}, work-inprocess, finished goods, shipment of finished goods)
iii) Document how the actual costs are recorded in the system. Include a review
of payments for materials inventory, direct and indirect labor, manufacturing
overhead and all other costs included in the total cost calculation for the unit
under review.
i) Document how the Bill of Materials is created within the system. Document
how the following items are entered into the system:
f) Document the controls inherent in the MIS (i.e. the general and application
controls). Ensure adequate controls over materials inventory, production, labor,
overhead, etc.
i) General Controls
Review information pertaining to the organization controls and standard
operating procedures.
D) system testing;
G) system documentation standards -- program documentation, operations
documentation, user documentation.
A) handling errors;
C) file protection;
A) control methodology (exposures resulting from errors and irregularities,

management control objectives, system objectives, role of controls in EDP
systems)
B) audit trail;
Review the on-line entry, processing and output controls. This includes controls
to ensure:

D) that processing is reliable, proper and authorized;
E) that unreliable, improper, and unauthorized processing is detected;
F) that unreliable, improper, and unauthorized processing is corrected;
G) that errors detected in output are properly corrected and resubmitted to data
processing on a timely basis.
g) Since no election to average was filed by the producer of the good, the auditor
must make sure that the RVC calculation applicable to the good, or any other
information that served as a basis for the calculation, do not include any
averaging of costs incurred by the producer of the good, because of the fact that
the RVC must be calculated in accordance with Article 402(3) of the NAFTA, and
not in accordance with Section 11 of the Regulations.
To ensure that the good does not qualify as originating because of mere dilution
with water or another substance or because of a production or pricing practice
designed to circumvent the rules of origin as set out in Chapter 4 of the NAFTA.
Note: A good shall not be considered to be an originating good where there is a

"preponderance of evidence" that the object of a production or pricing practice
was to circumvent the Rules of Origin. In regards to unacceptable production
practices, circumvention consists of any alteration or process performed on
goods for the purpose of circumventing the rule of origin requirements. For
example, when the processing or assembling performed in the territory of
another Party of the Agreement is reversed or substantially altered after the
goods have been imported into Canada, and such processing or assembly was
not performed for any commercial purpose other than to qualify the good for the
NAFTA tariff treatment, then this will be considered circumvention.
6.1 Non-qualifying production/assembly operations
b) Obtain and review a copy of the bill of materials and any product literature for
the good under review. Document any concerns with respect to non-qualifying
c) Review the section of the 4. PLANT TOUR verification sub-program related to
non-qualifying operations. Address any concerns noted with respect to the nonqualifying production/assembly operations.
d) Review documents related to transportation (consider documents obtained in
the 17. TRANSSHIPMENT verification sub-program) and document any
concerns with respect to the finished good being altered subsequent to
importation.
e) Prepare a written evaluation of the non-qualifying production/assembly
operation and assess the evidence gathered.
f) Identify major adjustments made as a result of the11. VALUE OF MATERIALS
verification sub-rogram, and document any concerns.
g) Review adjustments made to the purchase accounts. Identify any concerns.
h) Prepare a written evaluation of the questionable non-qualifying pricing
practice(s) and assess the extent of the evidence gathered.
6.3 Conclusion
a) During the on-site visit, interview personnel to understand the

production/assembly operations. Document any concerns that need to be
confirmed during the plant tour.

To ensure that the bill of materials (BOM) of the good under review is complete
and accurate.
b) Verify the mathematical accuracy of the BOM.

c) Compare the values of the materials and the materials themselves (inventory
part # and name) on the BOM and the other supporting documentation to totals
reported in the submission of RVC information. If information concerning the
origin of the materials or sourcing of the materials is on the BOM and the
supporting documentation, also compare this information to the origin of the
materials declared in the submission of RVC information.
d) Using the information from the 6. REVIEW OF THE MANAGEMENT OF
INFORMATION SYSTEM verification sub-program, obtain the description of the
system for the BOM and any related documentation that is required to complete
verification procedure f). If necessary, review the policy and procedures manual
for the BOM with respect to the definition of the BOM, use of the BOM, what is
reported on the BOM, who and when changes are made to the BOM, etc.
e) To ensure that the BOM is complete:
i) compare the BOM to engineering documents/specifications (i.e. compare parts
and quantity to be included in the production);
ii) compare the part numbers, descriptions, and values to picking lists used to
obtain parts for the production from inventory (ensure this matches the inventory
management method as described in the MIS review);
iii) compare the BOM to product literature;
iv) review the sourcing of materials for consistency on the BOM;
a) Obtain the BOM and any additional supporting documentation for the good
under review used by the producer to prepare the submission of RVC
information. (Refer to the 8. TARIFF CLASSIFICATION verification subprogram.)
v) compare the BOM to a BOM for a similar good (i.e. use professional judgment
to ensure all materials on theBOM are incorporated into the good and to ensure
there are non missing materials that should be incorporated into the good).
Document any differences. Obtain explanations from the producer.
f) Review the company's standard cost accounting policies, if standard costs
were used. If so, ensure that the standard cost of the good has been adjusted to
the actual cost of production of the good on a per unit basis.
h) Conclude on the verification sub-objective.

To ensure that the finished good is properly classified under the Harmonized
System (H.S.) of tariff classification, and to ensure the correct rule of origin is
applied.
To identify all materials which would not meet the necessary tariff classification
change as required by the specific rule of origin (Schedule I of the NAFTA Rules
of Origin Regulations) applicable to the good if they were non-originating
materials.
To classify all potential traced materials (materials of a tariff provision listed in
Schedule IV of the NAFTA Rules of Origin Regulations) used or incorporated in
the good in order to establish the value of non originating materials as per
Section 9 of the Regulations.
8.1 General
a) Interview the person(s) responsible for tariff classification to establish how the
classifications of the good and materials were determined. Obtain any rulings
that the company received from other Customs Administrations.
g) Identify any accessories, spare parts and tools, packaging materials and
containers for retail sale and packing materials and containers for shipment to be
disregarded for evaluating the tariff classification change requirement. Provide
this information to the person responsible for the 8. TARIFF CLASSIFICATION
verification sub-program. Provide the information concerning packing materials
and containers for shipment to the person responsible for the 13. VALUE OF
OTHER COSTS THAN MATERIALS and 11. VALUE OF MATERIALS
b) Document the potential for fungible materials while performing the procedures
in this verification sub-program.
c) Obtain information from the company pertaining to the de minimis calculation
when the company has applied the de minimis provision to qualify the good. To
evaluate de minimis, refer to the verification procedures in Chapter 5 of this audit
manual.
d) For use in the 9. SOURCE OF MATERIALS verification sub-program, note the
source of materials, if you come across this information while performing the
procedures in this verification sub-program.
8.2 Classification of the finished good and intermediate materials (IMs)
f) Obtain from the 4. PLANT TOUR verification program, information with respect
to the production of the good or the intermediate materials and physically inspect
the good during a plant tour to aid in confirming the correct classification number
and rule of origin of the finished good and IMs.
g) Identify the classification declared by the company in the RVC information and
on the NAFTA Certificate of Origin.
h) Identify the applicable rule of origin for the good and the IMs.
i) Prepare a conclusion on the tariff classification for the good under review and
the IMs.
To be completed where the non-originating materials included in the good and
IMs under review are required to undergo a tariff classification change.
j) Analyze the rule of origin identified in verification procedure h) to determine the
tariff classification of the materials that would not meet the required tariff
k) Obtain an accurate description of the materials used in the production of the
good under review, by physical examination, reviewing supplier parts catalogue,
purchase orders, engineering documents and/or supplier contracts. Document
e) Obtain and review documentation on the good and IMs, e.g., bill of materials,
owner's manual, public brochures, engineering specifications, catalogues,
invoices, bill of lading, and verify if the information is consistent with the tariff
classification of the good under review. Review the export documents for the
Harmonized System (H.S.) number for the good under review.
any self-produced materials designated in accordance with subsection 4(8) of the

l) Classify all materials, except those identified as accessories, spare parts and
tools; packaging materials and containers for retail sale and packing materials
and containers for shipment (obtain this information from the 7. BILL OF
MATERIALS verification sub-program), to the level required for the tariff
classification change requirement.
m) Identify those materials which would not meet the tariff classification change
requirement if they were non-originating.
8.4 Classification of all potential traced materials (materials of a tariff provision
listed in Schedule IV of the Regulations) used or incorporated in the good
i) those materials that are of a tariff provision listed in Schedule IV of the NAFTA
Rules of Origin Regulations, but do not contain any Schedule IV of the NAFTA
Rules of Origin Regulations sub-materials
ii) those materials that are of a tariff provision listed in Schedule IV of the NAFTA
Rules of Origin Regulations, which may also contain sub-materials that are of a
tariff provision listed in Schedule IV of the NAFTA Rules of Origin Regulations.
For those materials identified;
A) identify the sub-materials by examining the BOM for the sub-materials, the
supplier parts catalogues, and/or by physical examination;
C) identify the sub-materials that are of a tariff provision listed in Schedule IV of
iii) those materials that are NOT of a tariff provision listed in Schedule IV of the
NAFTA Rules of Origin Regulations, but which may contain sub-materials that
are of a tariff provision listed in Schedule IV of the NAFTA Rules of Origin
Regulations. For those materials identified;
n) Using the BOM of the good under review, (and any information concerning the
potential traced material content of intermediate materials, if applicable, from the
12. INTERMEDIATE MATERIALS DESIGNATION verification sub-program)
obtain an accurate description of the materials by physical examination,
reviewing supplier parts catalogues, engineering documents and/or supplier
contracts (some of this reference material may have been gathered in verification
procedure j) of this verification sub-program). Identify:
A) identify the sub-materials by examining the BOM, the supplier parts

catalogues, engineering documents, supplier contacts, and/or by physical
examination;
C) identify the sub-materials that are of a tariff provision listed in Schedule IV of
o) Repeat the steps in m)i) through m)iii), as necessary, to identify any submaterials, used or incorporated into the materials, that are of a tariff provision
listed in Schedule IV of the NAFTA Rules of Origin Regulations.
- the origin of all materials which would not meet the necessary tariff
classification change as required by the specific rule of origin (Schedule I of the
Regulations) if the materials were non-originating; and
- the source of all materials or sub-materials of a tariff provision listed in
Schedule IV of the Regulations, used or incorporated in the good in order to
establish the value of non-originating materials (Section 9 of the Regulations)
especially the ones claimed as originating materials by the producer or his
supplier.
a) Obtain the list of the materials which would not meet the tariff classification
change required by the specific rule of origin from the Classification of materials
for tariff classification change requirement only section of the 8. TARIFF
p) Prepare a working paper to document all the identified materials, used or

incorporated into the good at any level of production, that are of a tariff provision
listed in Schedule IV of the NAFTA Rules of Origin Regulations. Also, when
applicable, group the sub-materials by the material that incorporates the submaterial.
b) Confirm the origin of these materials by reviewing the Certificate of Origin or

supplier certification obtained by the producer or by reviewing the purchase
order, invoice and the receiving document.
c) Physically inspect these materials to verify markings or any other indications
which might indicate that the materials are non-originating.
d) Assess if the 7% De Minimis rule can be applied if there are non-originating
materials that do not meet the required tariff classification change (see
verification procedure f) in the 11. VALUE OF MATERIALS verification subprogram.
e) Evaluate the need to send supplier confirmations for the purposes of the origin
of materials for the tariff classification change requirement.
9.2 Source of materials of a tariff provision in Schedule IV of the NAFTA Rules of

Origin Regulations for the purposes of determining the VNM
g) Obtain the complete list of all potential traced materials (i.e., materials and
sub-materials of a tariff provision listed in Schedule IV of the NAFTA Rules of
Origin Regulations) from the CLASSIFICATION OF ALL POTENTIAL TRACED
MATERIALS USED OR INCORPORATED IN THE GOOD section of the 8.
TARIFF CLASSIFICATION verification sub-program.
h) From the list obtained in verification procedure g) select a sample of materials
and sub-materials which the exporter has claimed as originating (including those
materials which may contain sub-materials) and perform the following:
i) verify if the source of the above materials could be valid, by looking at the
Industry Profile documentation, industry information and other submissions for
similar goods (i.e. could these materials be imported);
ii) interview company officials responsible for the origin of materials as found in
the submission of RVC information. Ask what procedures they used to verify the
source of the materials. Document strengths and weaknesses of the manner in
which the company assigned origin to the materials;
iii) if the company has received supplier certifications to verify the source of the
materials, review them and determine if they are adequate (if not adequate these
items may be considered high risk items for confirmation purposes).
i) Obtain information from the exporter's policy and procedures manuals and
complete a plant tour to assist in identifying the source of materials. Physically
f) Conclude as to whether the tariff classification change requirement has been

satisfied.
inspect the materials to identify markings or any other indications of whether or

not the materials may be imported. Coordinate this work with that in verification
procedure m)ii). While conducting the plant tour and through enquiry of
management, identify any parts of the production process that may be subcontracted to another company.
j) Review the concerns identified in the 4. PLANT TOUR verification subprogram.
k) Obtain a list of suppliers for all materials on the list obtained in verification
procedure g). For the originating materials identified in verification procedure h),
determine the suppliers and perform the following:
ii) inquire of company officials if there were any supplier changes or any
materials that are sourced from more than one supplier. The Approved Vendor
List or the history of the engineering specifications may provide evidence of
supplier changes;
iii) determine whether there are any fungible materials. Examine the parts and
supplier lists, the Approved Vendor List and inquire as to whether the same
material is sourced from both a supplier from a NAFTA country and from a nonNAFTA country and if they source parts from distributors. (This information will
be used in the 10. INVENTORY MANAGEMENT SYSTEM verification subprogram.)
l) Using the 8. TARIFF CLASSIFICATION verification sub-program identify 1) any
materials of a tariff provision listed on Schedule IV of the NAFTA Rules of Origin
Regulations that had been designated as originating but were in fact imported
from outside the NAFTA territory or 2) any materials that are not of a tariff
provision on Schedule IV of the NAFTA Rules of Origin Regulations that are
considered non-originating but were in fact imported from outside the NAFTA
territory, i.e. information from supplier catalogues and markings during the plant
tour.
m) Select a sample of originating materials from the list obtained in verification
procedure g) and perform the following:
i) scan the purchase invoice (for the material used in the good under review), any
attached shipping documents, and bank endorsement stamp on the canceled
check to determine whether they support the exporter's claim for the source (and
i) determine whether any of the suppliers have companies in a non-NAFTA

country, or if the suppliers are U.S., Canadian or Mexican distributors (these
suppliers will be considered high-risk items for confirmation purposes);
ii) select materials from this sample to verify markings and coordinate this work
with that performed in verification procedure i);
iii) follow up on any contradictory observations; and
iv) prepare a working paper to control this process and to document the results.
n) Using the list obtained in verification procedure g), select a sample of
materials not claimed as originating by the producer and determine if:
i) the materials are imported directly into the NAFTA territory by the producer, or
ii) the materials are imported into the territory by someone other than the
producer, or
o) Compare any supplier statements or certificates of origin obtained through the

verification procedures identified above to the bill of materials.
p) Evaluate the need to expand sampling procedures based on the results of the
testing performed above.
q) Assess if the origin or the traced material content of any of the materials needs
to be confirmed with respect to the materials listed on Schedule IV of the NAFTA
r) Conclude as to whether the materials listed on Schedule IV of the NAFTA
Rules of Origin Regulations, including the materials (and sub-materials) that may
incorporate sub-materials listed on Schedule IV of the NAFTA Rules of Origin
Regulations, are originating, imported or non-originating but not-imported (as
determined by the Customs officers).
s) Judgementally select suppliers from whom supplier confirmations will be
obtained: to confirm the origin of materials listed on Schedule IV of the NAFTA
Rules of Origin Regulations claimed to be originating; or to confirm the origin of
materials that have potential traced materials in them and claimed by the
company or its supplier to be originating (the value of the traced materials may
also be subject to this confirmation); or to confirm the origin of materials that if
found to be non-originating would not meet the tariff change requirements in
Schedule I and that have been claimed as being originating by the company.
iii) the producer chose to identify the material as non-originating per 9)9)e) of the
Regulations If the material is imported into the territory by someone other than
the producer, obtain supplier statements for these materials. This information will
be used in the 11. VALUE OF MATERIALS verification sub-program.
i) send confirmations to high risk suppliers who are distributors, or those who are
known to import parts from outside the territory, or where the reliability of the
suppliers certifications on file with the exporter/producer are questionable and for
high dollar value materials;
ii) find information on the suppliers in the exporter/producer correspondence files
and purchase records, i.e. addresses, contact person, phone numbers, etc;
iii) ensure that confirmations are sent out to all suppliers if there is more than one
supplier of a material or if suppliers were changed during the period under
review;
Note: Confirmations for which there is no response or insufficient information will

result in the material being considered non-originating for tariff change purposes,
and will be included in VNM for the RVC calculation.
v) review the confirmations once they are received from the suppliers and
compare the information on the confirmations with the information on the
certificates filed with the exporter/producer;
vi) determine if supplier confirmation letters should be sent to the suppliers of the
suppliers of the exporter and/or producer, because there are materials which
require further verification (either for origin or VNM purposes);
vii) after reviewing the supplier confirmation, consideration should be given to
conducting a restricted supplier verification at the supplier's premises based on
the evidence gathered to date. However, such visits will have to be approved
prior to making any arrangements;
viii) prepare a working paper to control the confirmation process and to document
the results;
ix) prepare a letter to each supplier subject to the confirmation process, notifying
them of whether or not the material was found to be originating.
9.4 General
t) Ensure that all verification adjustments required as a result of the sourcing
iv) follow up with the supplier to obtain a completed confirmation , this may be
telephone within a predetermined time frame to ensure that all the completed
confirmation are received;
To determine if an applicable inventory management method is in place when
fungible materials (physically separated or commingled) are used in the
production of a good, or when fungible goods are physically combined or mixed
in inventory, potentially to identify the origin of a specific good.
If an acceptable inventory management method does not exist, for the purposes
of the tariff classification change requirement, all fungible materials will be
considered to be non-originating, and, for the purposes of the RVC requirement,
the total value of all fungible materials identified as a risk above will be included
in the calculation of VNM.
Note that the existence of fungible materials does not automatically require that
this verification program be applied, as the exporter/producer may choose to
treat, for the purposes of the tariff classification change requirement, all fungible
materials as non-originating, and, for the purposes of the RVC requirement, the
total value of all fungible materials as part of VNM.
a) Obtain from the 9. SOURCE OF MATERIALS verification sub-program, a
listing of identified fungible materials.
b) Determine the impact on the origin of the good under review should the
inventory management system be found to be not acceptable. When fungible
materials exist, evaluate the impact in terms of the tariff classification change
requirement (consider the use of the de minimis provision) by reviewing the
information obtained in the 8. TARIFF CLASSIFICATION verification subprogram, as well as in terms of the regional value content requirement
(considering Schedule IV of the NAFTA Rules of Origin Regulations and
materials that may contain traced sub-materials) by reviewing the information
obtained in the 11. VALUE OF MATERIALS verification sub-program and the 15.
CALCULATION OF THE REGIONAL VALUE
CONTENT verification sub-programs. If the impact is significant,proceed with the
evaluation of the inventory management system.
In terms of fungible materials used in the production of light-duty automotive

goods, an inventory management method must identify originating versus nonoriginating materials for the purposes of the tariff classification change
requirement. Also, for the purposes of the RVC requirement, an inventory
management method must, for materials that are on Schedule IV of the NAFTA
Rules of Origin Regulations, identify not imported versus imported materials, and
for all materials that have more than one supplier, identify the different traced
sub-material values.
c) Determine which of the following inventory management systems outlined in

the NAFTA Regulations - Schedule X the company used for the fungible
materials (goods):
FIFO
LIFO
Average Method
e) If Specific Identification was used, ensure that fungible materials (goods) were
physically segregated, or ensure the existence of an origin identifier.
f) If FIFO was used, review the company's receipts and withdrawals from the
inventory record system. Ensure that the fungible materials (goods), identified by
origin or supplier, as applicable, first received were considered to be the fungible
materials (goods), identified by origin or supplier, as applicable, first withdrawn.
g) If LIFO was used, review the company's receipts and withdrawals from the
origin or supplier, as applicable, last received was considered to the fungible
h) If the average method was used, ensure that the ratio was calculated and
applied correctly.
i) Ensure whichever method that was chosen, that it was used from the time it
was chosen to the end of the fiscal year. Has the system changed since the
inception of NAFTA?
j) Ensure that the company correctly determined the materials, identified by origin
or by supplier, as applicable, in its opening inventory by:
i) identifying, in the books of the producer, the latest receipts of fungible materials
that add up to the amount of fungible materials in opening inventory at the time
an inventory method is chosen;
ii) reviewing the origin or supplier of the materials (goods), as applicable, that
make up those receipts;
d) Document the inventory management system from the beginning to end (i.e.
purchasing, receiving, storage of materials, removal of materials from storage
into production of a good, storage of a good and removal of the good from
storage for shipment of the good).
iii) determining those fungible materials (goods) to be the fungible materials

(goods) in opening inventory, identified by origin or supplier, as applicable.
k) Review the inventory management system by performing compliance tests of
a sample of purchase transactions. The sample should include transactions
involving materials (goods) that were fungible materials (goods) at the inception
of the NAFTA and materials (goods) that were identified as fungible since the
inception (i.e. change in supplier).
l) Is the inventory management system tested periodically? Obtain a description
of periodic testing and evaluate it's effectiveness.
i) the inventory management system used by the Company meets all the
requirements of Schedule X of the Regulations (i.e. the inventory management
system is acceptable); or
ii) the inventory management system used by the company requires
improvement to meet the requirements of Schedule X of the Regulations document the weaknesses of the system - document the impact on the origin of
the good under review; or
iii) the inventory management system does not meet the requirements of
Schedule X and the company can/cannot construct the necessary inventory
system - document the impact on the origin of the good under review.
To ensure that the value of originating and non-originating materials has been
calculated in accordance with NAFTA.
11.1 General
a) Gather any information relevant to the value of materials identified in the 5.
REVIEW OF THE MANAGEMENT OF INFORMATION SYSTEM verification subprogram. Assess the internal controls in place to preserve the quality and
m) Test a sample of fungible material (good) inventories by identifying the origin

of opening inventory, adding receipts/adjustments of materials (goods) and
deducting withdrawals/adjustments and compare your results to the company's
records.
accuracy of the data available by reviewing policy and procedures manuals with
respect to the purchase of materials, internal auditor's reports, setting of
standards and identification of variances and by performing a walk through of the
purchasing and receiving function and documenting the flow of information by
tracing material requisitioning, ordering, receiving and reporting, returns,
accounting, and cash disbursement.
b) From discussions with the company staff, find out who is responsible for
determining the values for the materials and how the materials are valued. Is the
same valuation method used for all the materials, i.e., do they use a different
method for determining the value of non-originating materials than the value of
originating materials? Are materials valued differently for NC and VNM
purposes?

ii) Identify all cost types included in the calculations (freight, insurance, packing
and other costs incurred in transporting, such as duties and taxes and brokers
costs, including in-house broker costs). Apply the appropriate verification
procedures to the costs being examined (examine invoices, calculations,
standard costs, etc...).
iv) Determine if the values of materials are the same currency as the currency of
the country in which the person who provided the supplier statement is located.
See Section 3 of the Regulations.
d) Identify all related suppliers and determine if the purchase price was affected
by the relationship and if an adjustment will be required.
i) Identify and review accounts or any documents that may pertain to material
transfers and/or transfer payments from the producer to the supplier to identify
any possible assists.
c) Review the calculations prepared by the company including any supporting

documentation and supplier certifications and statements obtained by the
producer. Supplier certifications and statements should state whether the
material is originating or non-originating, either with traced materials, or, with a
value of traced materials, or, with a zero value of traced materials. Determine if
the procedure used to value materials for both NC and VNM purposes is in
accordance with the Regulations.
ii) If materials are dual sourced, compare the purchase prices of the related and
non-related companies, e.g. obtain price list from the producer listing suppliers,
prices and materials.
iii) Review correspondence between the producer and the related suppliers. Is
there a possibility of the relationship affecting the value used? Refer to Section 7,
Section 9 or Schedule VIII, as applicable, for the method of determining the
correct value.
e) Inquire as to how price and usage variances are accounted for. Analyze if
these variances (actual and standard cost) are significant and adjust the value of
the materials in the RVC calculation, if necessary.
11.2 Deminimis
11.3 Value of materials to be included in net cost

g) Verify that all materials that are included in the net cost calculation are valued
in accordance with section 7 of the Regulations. NOTE: the value of materials
calculated in accordance with NAFTA includes the following regardless of
whether the applicable value is the customs value of the material or the
transaction value with respect to the transaction in which the producer acquired
the material:
i) Freight, insurance and packing and all other costs incurred in transporting the
ii) duties and taxes paid or payable with respect to the materials in the territory of
one or more of the NAFTA countries, unless they were refunded or waived;
iii) customs brokerage fees (including in-house services);
iv) waste and spoilage resulting from the use of the material in the production
(minus the value of reusable scrap);
i) commissions, except buying commissions;
f) Except for goods of tariff item number 8415.81 through 8415.83, if there are
non-originating materials that do not meet the required tariff classification
change, verify if the value of these materials determined in accordance with
section 7 of the Regulations is less than or equal to 7% of the transaction value
(or total cost of the good, if the transaction value is unacceptable), to see if the
de minimis rule can be applied. (see verification procedure d) in the 9. SOURCE
OF MATERIALS verification sub-program).
ii) elements (assists) supplied to the seller by the producer (materials; tools, dies,
molds and other indirect materials; engineering, development, artwork, design
work, and plans and sketches performed outside the country in which the
producer is located)
iii) royalties;
iv) subsequent proceeds that accrue to the seller. The value of materials to be
included in net cost also includes accessories, spare parts, tools, packaging
materials and containers for retail sale. The value of intermediate materials, if
applicable, should be obtained from the information obtained in the 12.
INTERMEDIATE MATERIALS DESIGNATION verification sub-program.
i) Inquire into the results of the 7. BILL OF MATERIALS verification sub-program,

and take these results into consideration while conducting the value of materials
verification procedures.
j) Judgementally select a sample of high risk materials for value of materials
purposes. (Consider obtaining sufficient audit coverage). (Note: High risk for
value purposes would be fungible materials or those non-traced materials that if
found to be traced, or contain traced materials would make the good nonqualifying for RVC purposes. It could also be materials that are overvalued and
correctly identified as non-traced or materials that are undervalued and correctly
identified as traced, therefore creating an overstatement of the RVC
percentage.).
i) determine the actual price paid by the exporter/producer by tracing to the
purchase invoice, the attached shipping documents and the bank endorsement
stamp on the canceled check;
ii) calculate the difference between the actual and standard cost and compare
with the price variance or variance from standard claimed by the
exporter/producer; follow-up on any substantial differences; and
iii) trace the total invoice amount to the appropriate ledgers and sub-ledgers to
verify that purchases have been recorded correctly in the exporter's/producer's
books and records.
k) Verify that the value of all materials, calculated in accordance with section 7 of
the Regulations, are included in the net cost of the goods. Ensure that the value
of traced (non-originating) materials, determined in accordance with section 9 of
the Regulations, as set out below, are not also added in the calculation of the
h) Review the values of materials reported in the submission of RVC information

and assess if these amounts seem reasonable by comparison with the RVC
information of a similar good.
net cost of the goods, as they would be double counted. Also, ensure
intermediate materials are included only once.
l) Prepare a working paper to ensure that all adjustments required for materials
as a result of value of materials verification procedures have been recorded.
m) Conclude as to whether the value of materials is correct.
11.4 Value of non-originating materials (traced materials)
o) Judgementally select a sample of high risk traced materials (high risk in terms
of VNM includes traced materials, as well as non-traced materials that contain
traced materials (except those imported materials that are not on Schedule IV of
the NAFTA Rules of Origin Regulations, even if they contain traced
materials))and determine, by, for example, reviewing commercial invoices, and
customs invoices, and by applying the relevant valuation methods: (Consider
materiality in terms of closeness to RVC requirement)
i) Where the producer imported the traced material and took title at time of
importation the value should be the sum of
A) the customs value of the traced material, and where not included in the
customs value, any costs identified in B) and C) below:
B) freight, insurance, packing and other costs that were incurred in transporting
the traced material to the first place at which it was received in the territory of a
NAFTA country, and
C) duties and taxes paid or payable with respect to the material in the territory of
one of more of the NAFTA countries, other than duties and taxes that are waived
refunded, refundable or otherwise recoverable, including credit against duty or
tax paid or payable, and customs brokerage fees, including the cost of in-house
customs brokerage services, incurred with respect to the material in the territory
of one or more of the NAFTA countries.
ii) Where the producer imported the traced material from outside the territories of
the NAFTA countries and does not have or take title to it at the time of
importation, the value should be the sum of
n) Obtain the list of traced materials and sub-materials (i.e. imported materials of
a tariff provision listed in Schedule IV of the NAFTA Rules of Origin Regulations)
developed in the 9. SOURCE OF MATERIALS verification sub-program, and the
list, and value, of the traced materials contained in the intermediate material, if
applicable, from the 12. INTERMEDIATE MATERIALS DESIGNATION
customs value, any costs identified in B) and C) below:
the traced material to the place at which it was when the producer took title in the
territory of a NAFTA country, and
one or more of the NAFTA countries, other than duties and taxes that are
waived, refunded, refundable or otherwise recoverable, including credit against
duty or tax paid or payable, and customs brokerage fees, including the cost of inhouse customs brokerage services, incurred with respect to the material in the
territory of one or more of the NAFTA countries.
customs value, any costs detailed in B) and C) below:
the traced material to the first place at which it was received in the territory of a
NAFTA country, and
one of more of the NAFTA countries, other than duties and taxes that are waived,
iv) Where a person other than the producer imports the traced material from
outside the territories of the NAFTA countries and that person does not have or
take title to the material at the time of importation, if the producer has a statement
that is signed by the person from whom the producer acquired the traced
material, whether in the form in which it was imported into the territory of a
NAFTA country or incorporated into another material, and states all the following
values, the value of the traced material should be:
customs value, any costs detailed in B) and C) below:
iii) Where a person other than the producer imports the traced material from
outside the territories of the NAFTA countries and that person has or takes title to
the material at the time of importation, if the producer has a statement that is
signed by the person from whom the producer acquired the traced material,
whether in the form in which it was imported into the territory of a NAFTA country
or incorporated into another material, and states all the following values, the
value of the traced material should be
the traced material to the place at which it was located when the first person in
the territory of a NAFTA country took title, and
one of more of the NAFTA countries, other than duties and taxes that are waived,
A) the value determined in accordance with Schedule VIII (transaction value or

value determined with an alternative method), with respect to a transaction that
occurs after the customs value of the traced material was determined, and where
not included in that value,
B) taxes, other than duties paid on an importation of a material from a NAFTA
country, paid or payable with respect to the material in the territory of one of
more of the NAFTA countries, other than taxes that are waived, refunded,
refundable or otherwise recoverable, including credit against tax paid or payable.
vi) Where a person other than the producer imports the traced material from
outside the territories of the NAFTA countries, and the producer acquires a
material that incorporates the traced material and the acquired material was
produced in the territory of a NAFTA country and is subject to a regional valuecontent requirement, if the producer has a statement that is signed by the person
from whom the producer acquired the material, and states that the acquired
material is an originating material, and also states the regional content of the
material, the value of the material should be:
VM is the value of the acquired material, determined in accordance with
Subsection 9(5), with respect to the transaction in which the producer acquired
the material, and RVCR is the regional value-content requirement for the
acquired material, expressed as a decimal.
v) Where a person other than the producer imports the traced material from
outside the territories of the NAFTA countries and the producer acquires the
traced material or a material that incorporates the traced material from a person
in the territory of a NAFTA country who has title to it, if the producer has a
statement that is signed by the person from whom the producer acquired the
traced material or the material that incorporates it, and states all the following
values, the value of the traced material or the material that incorporates it should
be
vii) Where a person other than the producer imports the traced material from
outside the territories of the NAFTA countries, and the producer acquires a
material that incorporates the traced material and the acquired material was
produced in the territory of a NAFTA country and is subject to a regional valuecontent requirement, if the producer has a statement that is signed by the person
from whom the producer acquired the material, and states that the acquired
material is an originating material but does not state any value with respect to the
traced material, the value of the material should be:
viii) Where a person other than the producer imports the traced material from
outside the territories of the NAFTA countries and the producer acquires a
material that incorporates that traced material, that was produced in the territory
of a NAFTA country, and for which an amount was determined with the formula
VM x (1 - RVCR) (in accordance with vi) or vii
respectively above), if the producer of the good has a statement signed by the
person from whom the producer acquired the material that states such an
amount determined with the formula VM x (1 - RVCR), the value of the material
should be the amount determined with the formula
VM x (1 - RVC) or (1 - RVCR) as the case may be.
Explanation: The producer receives a statement that states one amount as the
value of the material. That amount is determined by the supplier of the material in
accordance with the provisions of paragraph 9(2)(f) or 9(2)(g), as the case may
be. That amount is the one the producer will use as the value of the material.
ix) Where a person other than the producer imports the traced material from
outside the territories of the NAFTA countries and the producer does not have a
statement described in any of paragraphs 9(2)(c) to (h), the value of the traced
material or any material that incorporates it is determined in accordance with
Subsection 9(5) with respect to the transaction in which the producer acquires
the traced material or any material that incorporates it.
p) Determine whether all costs incurred in transporting materials have been
identified and correctly reported (i.e. freight, insurance, packing, etc.).

Subsection 9(5), with respect to the transaction in which the producer acquired
the material, and RVCR is the regional value-content requirement for the
acquired material, expressed as a decimal.
i) Test the method used by the company when identifying these costs, by
selecting a sample of materials on the BOM that are purchased from within the
territory of the NAFTA countries and those from outside the territory of the
NAFTA countries.
ii) Identify any assumptions made by the company. Test these assumptions to
ensure that they are valid (i.e. if the company is using a standard cost system
ensure that they follow the correct procedures for updating or revising the
standard cost values).
iii) Trace the materials to the purchase invoice and determine the amount of
transportation costs associated with those materials. If the transportation costs
are not included in the purchase price, trace the costs to the invoices for all costs
incurred in transporting the materials.
q) Determine whether duty, taxes and brokerage fees with respect to the
purchase and importation of materials have been identified and correctly
reported, making adjustments as required. (keeping in mind materiality and risk)
r) Ensure that VNM is adjusted for any variances that affect traced materials
values.
s) Verify that values for all the traced materials are included in the Value of Nonoriginating Materials (VNM) calculation.
t) If the company included other non-originating materials (other than traced
materials) in VNM, verify that the values of these materials are calculated in
accordance with subsection 9(5) of the Regulations. Ensure that these materials
do not contain traced materials already included in VNM.
u) Prepare working papers to support all traced materials. Ensure that sufficient
and appropriate evidence has been obtained to support the conclusions made.
11.5 Conclusion
v) Conclude on the verification sub-objective.
12. INTERMEDIATE MATERIALS DESIGNATION
The objective of this verification sub-program is to review any self-produced
materials including self-produced materials and containers, and self-produced
iv) Prepare adjustments as required as a results of this testing. (keeping in mind

materiality and risk)
accessories, spare parts and tools, designated as an intermediate material by the

producer. If intermediate materials are designated by the company, and are
found to qualify, the value of the intermediate material is considered an
originating material for RVC calculation purposes. However, intermediate
materials in light-duty automotive goods are still subject to the tracing provisions
set out in Section 9 of the NAFTA Rules of Origin Regulations.
a) Document all intermediate material designations made by the company.
b) Inquire of the company officials as to how the value of the intermediate
material(s) was calculated. Are all costs reasonably allocated to the intermediate
material?
c) Ensure that material, labor, overhead costs, etc. related to the intermediate
material are not double counted in the respective costs related to the final good.
d) Is the intermediate material a light-duty vehicle, or a good of a tariff provision
listed on Schedule IV of the Regulations, that is subject to a RVC requirement
and is for use as original equipment in the production of a light-duty vehicle?
If so, complete the 7. BILL OF MATERIALS, 8. TARIFF CLASSIFICATION, 9.
SOURCE OF MATERIALS, 11. VALUE OF MATERIALS, 13. VALUE OF OTHER
COSTS THAN MATERIALS, and 15. CALCULATION OF THE REGIONAL
VALUE CONTENT REQUIREMENT sub-programs of the light-duty automotive
verification (averaged or non-averaged, as applicable) programs, specifically
oriented towards the intermediate materials. Any traced materials contained in
the intermediate material and their value should be noted. This information will be
used in the VALUE OF MATERIALS for the purposes of adding into the value of
non-originating materials (i.e. traced materials) of the final good.
If not, evaluate the originating status of the intermediate material using the nonautomotive verification programs contained in Chapter 5 of the manual. This
could involve a test of the tariff classification change or both a tariff classification
change and a regional value content requirement (using the net cost method for
determining the regional value content). While conducting these tests, note any
Note: For the purposes of calculating the RVC of the good, the producer of the
good may designate as an intermediate material any self-produced material that
is used in the production of the good, provided that where an intermediate
material is subject to a RVC requirement, no other self-produced material that is
subject to a RVC requirement and is incorporated into that designated selfproduced material is also designated by the producer as an intermediate
material. Also, intermediate materials are goods in their own right, and must
therefore meet the rule of origin applicable to an intermediate material.
materials that are potentially traced materials. This information will be used in the
8. TARIFF CLASSIFICATION verification sub-program.
e) If more than one intermediate material has been identified, ensure that, where
the intermediate material is subject to a regional value-content requirement, no
other self-produced material subject to a regional value-content requirement is
used in the production of that intermediate material.
f) Conclude as to whether the intermediate material is an originating material
(and its traced material content, if applicable).
g) If an intermediate material is determined to be originating, calculate the total
cost in accordance with subsection 7(6) and subsections

To verify that the other costs (labor, overhead, excluded costs, and other costs)
included in the regional value content (RVC) calculation are only attributable to
the good under review.
a) Trace the detail of the net cost reported in the submission of RVC information
to the exporter / producer's working schedule. Trace these working schedules to
the books and records.
b) Identify the potential for sales promotion, marketing and after-sales service
costs, royalty, shipping and packing costs and non-allowable interest costs being
included in the net cost of the good. Consider whether these costs are
attributable to the good, or to qualifying intermediate materials.
c) Ensure by scanning the detail in support of the net cost values in the
submission of RVC information that period costs, product costs, and other costs
incurred in the territory of one or more of the Parties are included in the net cost
figure. By breaking down the overhead and general and administrative figures,
ensure that the net cost does not include:
2(6) through 2(9) of the Regulations (i.e. all product, period and other costs, less
the costs identified in verification procedure c) of the 13. VALUE OF OTHER
COSTS THAN MATERIALS verification sub-program). This information will be
used in the 11. VALUE OF MATERIALS verification sub-program.
ii) capital gains taxes, dividends, or other accounts that should be classified as
assets or reductions to income accounts;
iii) profits that are earned by the producer of the good, regardless of whether they
are retained or paid out to other persons as dividends;
iv) gains related to currency conversion that are related to the production of the
good (losses are added back into the net cost calculation) ;
v) costs of a service provided by a producer of a good to another person where
the service is not related to the good;
d) Review the amounts of labor, overhead and general and administrative
expenses included in the RVC calculation. Trace these labor, overhead and
general and administrative costs to the supporting documentation for the good
under review. Ensure none of these costs include excluded costs.
e) Obtain copies of agreements related to sales promotions and marketing.
Review the terms of the agreements and ensure that they were properly taken
f) Obtain copies of contracts related to shipping costs. Review the terms of the
contracts and ensure that they were properly taken into account in the net cost
calculation.
g) Refer to the verification sub-program to identify any materials considered to be
packing materials and containers for shipment purposes. Ensure that the value
for packing materials is not included in the calculation of the net cost of the good.
h) Obtain copies of royalty agreements, technical assistance agreements, and
other similar documents. Review the terms of the agreements and ensure that
they were properly taken into account in the net cost calculation.
i) Obtain copies of loan agreements. Review the terms of these agreements,
particularly the interest rates charged and ensure that any non-allowable interest
costs have been properly taken into account in the net cost calculation.
j) Review the chart of accounts and trial balance to identify accounts which
appear to be included costs but that the company has ignored in the net cost
vii) cumulative effects of accounting changes reported in accordance with a

calculation. List these accounts for further testing to supporting documentation

and discussion with company personnel.
k) When the light-duty automotive goods are motor vehicles which are produced
in a new plant, obtain the value of machinery from the 2. RVC REQUIREMENTS
FOR LIGHT-DUTY AUTOMOTIVE GOODS verification sub-program, verification
procedure l).
l) Prepare a working paper to adjust the net cost figure in the submission of RVC
information for any excluded, or not allowable costs not deducted by the
exporter/producer. (Remember that excluded costs attributable to a qualifying
intermediate material remain in the calculation for the net cost of the good.)
m) Conclude on the verification sub-objective.
To ensure that the exporter/producer that chose to accumulate the production of
one (or more) of his suppliers did so in accordance with Section 14 of the NAFTA
General
For purposes of determining whether a good is an originating good, an exporter
or producer of a good may choose to accumulate the production of one or more
producers, in the territory of one or more of the NAFTA countries, of materials
that are incorporated into that good so that the production of the materials shall
be considered to have been performed by that exporter or producer, provided
that:
- all non-originating materials used in the production of the good undergo an
applicable tariff classification change, and the good satisfies any applicable RVC
requirement, entirely in the territory of one or more of the Parties; and
Requirements
- In order to accumulate the production of a material,
i) where the good is subject to an RVC requirement, the producer of the good
must have a certification as described below that is signed by the producer of the
material, and
14. ACCUMULATION
ii) where an applicable change in tariff classification is applied to determine

whether the good is an originating good, the producer of the good must have a
statement signed by the producer of the material that states the tariff
classification of all non-originating materials used by that producer in the
production of that material and that the production of the material took place
- a producer of a good who chooses to accumulate is not required to accumulate
the production of all materials that are incorporated into the good;
- any information contained in the certification that concerns the value of
materials or costs shall be in the same currency as the currency of the country in
which the person who provided the statement is located.
Non-averaging of costs from accumulated production

Where a good is subject to a RVC requirement and an exporter or producer of
the good has a statement signed by a producer of a material that is used in the
a) states the net cost incurred and the value of non-originating materials used by
the producer of the material in the production of that material;
i) the net cost incurred by the producer of the good with respect to the material
shall be the net cost incurred by the producer of the material plus, where not
included in the net cost incurred by the producer of the material the costs
referred to in paragraphs 7(1)(c) through (e) of the Regulations (i.e. freight,
insurance, packing, transport to location of producer, duties and taxes, customs
brokerage fees); and
ii) the value of non-originating materials used by the producer of the good with
respect to the material shall be the value of non-originating materials used by the
producer of the material;
or
b) states any amount, other than an amount that includes any of the value of
non-originating materials, that is part of the net cost incurred by the producer of
the material in the production of that material,
shall be the value of the material determined in accordance with subsection 7(1)
of the Regulations (this is covered in the 11. VALUE OF MATERIALS verification
sub-program), and
Statement needed
respect to the material shall be the value of the material, determined in
accordance with subsection 7(1), minus the amount stated in the statement.
Where an exporter or producer of a good does not have a statement as provided
in (a) or (b) above, but does have a statement signed by a producer of the
material that is used in the production of the good that
i) the net cost incurred by the producer of the good wit respect to the material
shall be the sum of the net costs incurred by the producer of the material with
respect to that material and the identical materials or similar materials, divided by
plus, where not included i the net costs incurred by the producer of the material,
the costs referred to in paragraphs 7(1)c) through (e) of the Regulations, an d
respect to eh material shall be the sum of the values of non-originating materials
used by the producer of the material with respect to that material and the
identical materials or similar materials divided by the number of units of material
with respect to which the statement is made;
or
d) states any amount, other than an amount that includes any of the values of
non-originating materials, that is part of the sum of the net costs incurred by the
producer of the material in the production of that material and identical materials
or similar materials, or any combination thereof, produced in a single plant by the
producer of the material over a month, or any consecutive three, six or twelve
month period that falls within the fiscal year of the producer of the good, divided
by the number of units of materials with respect to which the statement is made,
shall be the value of the material, determined in accordance with subsection 7(1),
and
c) states that sum of the net costs incurred and the sum of the values of nonoriginating materials used by the producer of the material in the production of that
material and identical materials or similar materials, or any combination thereof,
produced in a single plant by the producer of the material over a month or any
consecutive three, six or twelve month period that falls within the fiscal year of
the producer of the good, divided by the number of units of materials with respect
to which the statement is made,
a) Determine that only the net cost method has been used to calculate the RVC
requirement where the producer has chosen to use accumulation.
b) Review the information received from the producer, that has accumulated the
production, to ensure that it is mathematically correct and ensure that it has been
correctly included in the RVC calculation.
d) Ensure that the profit component of the material being accumulated is not
included in the net cost information by examining the supplier information and by
comparing the price paid by the producer to the cost information provided by the
supplier.
e) Use the following verification sub-programs (only the applicable verification
procedures) in order to evaluate the information received: 8. TARIFF
CLASSIFICATION, 9. SOURCE OF MATERIALS, 10. INVENTORY
MANAGEMENT SYSTEM, 11. VALUE OF MATERIALS, 12. INTERMEDIATE
MATERIALS DESIGNATION, and 15. CALCULATION OF THE REGIONAL
VALUE CONTENT.
NOTE: Consideration should be given to the use of supplier confirmations and
visits to the supplier to verify the authenticity of the information reported to the
exporter / producer.
15. CALCULATION OF THE REGIONAL VALUE CONTENT (RVC)
To determine whether the good satisfies the NAFTA regional value content
requirement.
a) Obtain the value of all materials to be included in the net cost of the good and
the value of non-originating materials identified in the 11. VALUE OF
MATERIALS verification sub-program.
c) Evaluate the quality of the certifications and ensure that they contain all of the
required information as stated above.
b) Add to the value of all materials to be included in the net cost, the value of
other costs from the 13. VALUE OF OTHER COSTS THAN MATERIALS
verification sub- program to arrive at the net cost of the good.
c) Subtract the value of all non-originating materials from the net cost of the
good.
d) Divide the difference by the net cost of the good.
e) Multiply the result obtained in verification procedure d) by 100.
f) Conclude on the verification sub-objective.
To determine the origin of the good under review using the NAFTA Rules of
Origin Regulations.
a) Determine whether the good subject to verification originates under the
NAFTA by documenting whether the tariff classification change and RVC
requirements in the specific rule of origin have been met. Refer to the 9.
SOURCE OF MATERIALS and 15. CALCULATION OF THE REGIONAL VALUE
CONTENT verification sub-programs. Prepare a working paper documenting if
the good originates under the NAFTA.
b) Conclude on the verification sub-objective.
17. TRANSSHIPMENT
To verify that the originating good, by reason of having undergone production
that satisfies the requirements of section 4 of the NAFTA Rules of Origin
Regulations, (1) is not withdrawn from customs control outside the territories of
the NAFTA countries; and (2) does not undergo 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 such as
inspection, removal of dust that accumulates during shipment, ventilation,
spreading out or drying, chilling, replacing salt, sulphur dioxide or other aqueous
solutions, replacing damaged packing materials and containers and removal of
units of the good that are spoiled or damaged and present a danger to the
remaining units of the good or to transport the good to the territory of the Party.
a) Obtain and review the copy of the invoice, bill of lading or waybill for the goods
subject to verification. Document the shipping route and all points of shipment
and transshipment prior to the importation of the good. Determine if the good has
been conveyed directly on a through bill of lading from the exporter to a
consignee. Consider gathering information from the importer.
b) If the good has not been shipped directly on a through bill of lading, it may
have been transshipped through an intermediate country, provided that:
i) the good remained under Customs transit control in the intermediate country;
and
c) Determine whether the good shipped was not produce by the producer.
Consider the potential for fungible goods. If fungible goods are found, refer to the
10. INVENTORY MANAGEMENT SYSTEM verification sub-program. From the
transshipment information requested in verification procedure b) of this subprogram, consider requesting that the exporter/producer develop a working paper
which shows a reconciliation of shipments of goods exported by the exporter/
producer and imported into the territory of the other NAFTA Party, taking into
account their quantities and values.
APPENDIX Q
HEAVY DUTY AUTOMOTIVE GOODS - AVERAGED
TABLE OF CONTENTS
HEAVY-DUTY AUTOMOTIVE VERIFICATION PROGRAM (AVERAGED)
(Sub-programs 1 through 20)
ii) the good underwent no operations in the intermediary country other than the
unloading, reloading, or operations necessary to preserve the good under review
in good condition such as inspection, removal of dust that accumulates during
shipment, ventilation, spreading out or drying, chilling, replacing salt, sulphur or
other aqueous solutions, replacing damaged packing materials and containers
and removal of units of the other goods that are shipped with the good under
review which are spoiled, or damaged and present a danger to good under
review or any other operation necessary to transport the good to a NAFTA
country.
DEFINITION OF TERMS
HEAVY-DUTY AUTOMOTIVE GOODS WHERE THE COMPANY HAS

3.1. Identification of Election to Average
3.2. Identification of the Motor Vehicles Produced by the Motor Vehicle
Assembler which should be included in the Election to Average
3.3. Comparison and Reconciliation of the RVC Information to the Election Filed
Under Section 11 of the NAFTA-Rules of Origin Regulations, Motor Vehicle
Averaging
3.4. Comparison to the Election Filed Under Section 13(4)-Special RVC
3.5. General Summary Procedures
4.2 Identification of the Goods Included in the Automotive Parts Averaging
Election
4.3 Identification of the Motor Vehicle Producer Included in the Automotive Parts
Averaging Election
4.4 Identification of the Country(ies) of Export Included in the Automotive Parts
Averaging Election
4.5 Verification of the Period Elected by the Producer
4.6 Comparison and Reconciliation of the Submission of RVC Information
2. RVC PERCENTAGE REQUIREMENTS FOR HEAVY-DUTY AUTOMOTIVE

GOODS
2.1 Staged RVC Requirement for a Good of a Tariff Provision Listed in Schedule
IV
2.2 Staged RVC Requirements for a Heavy-Duty Vehicles and Heavy-Duty
Components
2.3 Special RVC Requirements for Heavy-Duty Vehicles Produced in a New
Plant
2.5. Special RVC Requirements for Heavy Duty Vehicles Produced in a Refit
Plant
7. PLANT TOUR
8.1. Review of the IM Designation for Compliance With Paragraph 10(9)(a)
8.2. HS Classification of the IM
8.3. Tariff Classification Change Requirements for the IM
8.4. Review of the RVC Requirements of the IM
FROM THE RVC CALCULATION

12.2 Source of Materials for the Purpose of Determining the VNM
12.4. General Summary Procedure
14.1 General Valuation Procedures
14.2 Application of the De Minimis Rule
14.3. Value of Materials to be Included in Net Cost
14.4 Value of Non-originating Materials
14.5 Review of Supplier VNM Statements
14.6 Comparing the Verified VNM With the Producers Figures
15. VALUE OF COSTS OTHER THAN MATERIALS
16. ACCUMULATION
17. CALCULATION OF THE RVC

11.1 General Introductory Procedures
11.2. Classification of the Finished Goods and Intermediate Materials (IMs)
11.3 Classification of Materials for Tariff Classification Requirement Only
11.4. Identification of Materials Used or Incorporated in the Good for VNM
Purposes

19.3 Conclusion on Non-qualifying Operations
20. TRANSSHIPMENT
DEFINITIONS
wherever a word or group of words are used as defined, the word or words will
appear in bold print :
"Automotive Component" means a good that is referred to in Column I of an item
of Schedule V.
"Automotive Component Assembly(ies)" means a good other than a heavy-duty
vehicle that incorporates an automotive component.
vehicles:
a) motor vehicles of any of Subheading 8701.20, Tariff Items 8702.10.30 and
8702.90.30 (except for the transport of 16 or more persons), subheadings
8704.10, 8704.22, 8704.23, 8704.32 and 8704.90 and Headings 8705 and 8706,
b) motor vehicles provided for in any of Subheadings 8701.10 and 8701.30
through 8701.90,
(vehicles for transport of 15 or fewer persons) and Subheadings 8704.21 and
8704.31, and
TO ENSURE THAT THE HEAVY-DUTY AUTOMOTIVE GOOD, WHERE AN

ELECTION TO AVERAGE HAS BEEN FILED, IS AN ORIGINATING GOOD IN
INCLUDED IN SECTION 10 (HEAVY-DUTY AUTOMOTIVE GOODS), SECTION
11 (MOTOR VEHICLE AVERAGING), SECTION 12 (HEAVY-DUTY
AUTOMOTIVE PARTS AVERAGING) AND SECTION 13 (SPECIAL RVC
REQUIREMENTS) OF THE NAFTA UNIFORM REGULATIONS.
a) a structural frame or unibody,

b) body panels,
c) an engine, a transmission and a drive train,
d) brake components,
e) steering and suspension components,
f) seating and internal trim,
g) bumpers and external trim,
i) electrical and lighting components.

"First prototype" means the first motor vehicle that
a) is produced using tooling and processes intended for the production of motor
b) follows the complete motor vehicle assembly process in a manner not
"Floor pan of a motor vehicle" means a component, comprising a single part or
a) where there is a luggage floor panel in the motor vehicle, at the place where
that luggage floor panel begins, and
b) where there is no luggage floor panel in the motor vehicle, at the place where
"Heavy-duty automotive good(s)" means a heavy-duty vehicle or a heavy-duty
component.
"Heavy-duty component(s)" means an Automotive Component or automotive
component assembly that is for use as original equipment in the production of a
heavy-duty vehicle.
"Heavy-duty vehicle(s)" means a motor vehicle provided for in any of Heading
8701, Tariff Items 8702.10.30 and 8702.90.30 (vehicles for the transport of 16 or
h) wheels, and
more persons), and Subheadings 8704.10, 8704.22, 8704.23, 8704.32 and

8704.90 and heading 8705, and 8706.
"Listed material(s)" means a good that is referred to in column II of an item of
Schedule V.
"Marque" means a trade name used by a marketing division of a motor vehicle
vehicle assembler.
"Model line" means a group of motor vehicles having the same platform or model
name .
(a) to differentiate the motor vehicle from other motor vehicles that use the same
platform design,
(b) to associate the motor vehicle with other motor vehicles that use different
platform designs, or
"Motor vehicle assembler" means a producer of motor vehicles and any related
"New building" means a new construction to house a complete motor vehicle
"Original equipment" means a material that is incorporated into a motor vehicle
a) a good of a tariff provision listed in Schedule IV, or
b) an automotive component assembly, automotive component, sub-component
or listed material.
"Plant" means a building, or buildings in close proximity but not necessarily
"Model name" means the word, group of words, letter, number or similar
designation assigned to a motor vehicle by a marketing division of a motor
vehicle assembler
a) light-duty vehicles and heavy-duty vehicles,

b) goods of a tariff provision listed in Schedule IV, and
c) automotive component assemblies, automotive components, sub-components,
"Platform" means the primary load-bearing structural assembly of a motor vehicle
that determines the basic size of the motor vehicle, and is the structural base that
supports the driveline and links the suspension components of the motor vehicle
for various types of frames, such as the body-on-frame or space-frame, and
monocoques.
Schedule V of the NAFTA Rules of Origin Regulations

Item Column I Column II
Automotive Components Listed Materials
1. For engines provided for incast blocks, cast heads, fuel nozzles, fuel injector
pumps, heading 8407 or 8408glow plugs, turbochargers, superchargers,
electronic engine controls, intake manifolds, exhaust manifolds, intake valves,
exhaust valves, crankshafts, camshafts, alternators, starters, air cleaner
assemblies, pistons, connecting rods and assemblies made therefrom, rotor
assemblies for rotary engines, flywheels (for manual transmissions), flexplates (
for automatic transmissions), oil pans, oil pumps, pressure regulators, water
pumps, crankshaft gears, camshaft gears, radiator assemblies, charge-air
coolers.
2 For Gear boxes (transmissions)(a) for manual transmissions: transmission
cases and provided for in subheadingclutch housings; clutches; internal shifting
mechanisms; 8708.40gear sets, synchronizers and shafts; and
(b) for torque convertor type transmissions: transmission cases and convertor
housings; torque convertor assemblies;gear sets and clutches; electronic
transmission controls.
"Size Category" , with respect to a light-duty vehicle, means that the total of the
interior volume for passengers and the interior volume for luggage is
(a) 85 cubic feet (2.38 m3 ) or less,
(b) more than 85 cubic feet (2.38 m3 ) but less than 100 cubic feet (2.80 m3 ),
"Refit" means a closure of a plant for a period of at least three consecutive

(c) 100 cubic feet (2.80 m3 ) or more but not more than 110 cubic feet (3.08 m3 ),
(d) more than 110 cubic feet (3.08 m3) but less than 120 cubic feet (3.36 m3), or
(e) 120 cubic feet (3.36 m3) or more.
"Sub-component" means a good that comprises a listed material and one or
more other materials or listed materials.
To ensure that the good is a heavy-duty automotive good and the company has
elected to average the sum of the net costs incurred and the sum of the values of
non-originating materials used by the producer in accordance with Subsections
11(1), 12(1) or 13(4) of the Regulations.
VERIFICATION PROCEDURES .
a) Using the definition of a heavy-duty vehicle, determine whether the good is
classified in one of the tariff provisions listed in the definition of a heavy-duty
vehicle and the producer has filed an election to average the sum of the net
costs incurred and the values of non-originating materials in accordance with
Subsections 11(1) or 13(4) of the Regulations. If so, this verification program is
applicable.
b) If the good is:
i) an Automotive Component or Automotive Component Assembly,
ii) for use as original equipment in the production of a heavy-duty vehicle; and
iii) the producer has elected to average the sum of the net costs incurred and the
values of non-originating materials in accordance with Subsection 12(1) of the
Regulations. If so, this verification program is applicable.
NOTE: If the good is a heavy duty automotive good but the producer has not
elected to average the sum of the net costs incurred and the values of nonoriginating materials in accordance with Subsection 11(1), 12(1) or 13(4) of the
Regulations, complete the Heavy-Duty Automotive Goods (Non-Averaged)

If the good is a light-duty automotive good and the producer has elected to
Regulations, use the Light Duty Automotive Goods (Averaged) verification
program.
1. ELIGIBILITY FOR THE NAFTA RULES OF ORIGIN PROVISION FOR
If the good is not a heavy duty automotive good nor a light duty automotive good,
then the general verification programs found in Chapter 5 of the NAFTA Audit
(Verification) Manual are applicable.
GOODS
To ensure that the applicable minimum Regional Value Content (RVC)
percentage requirement is used by the producer to determine whether the heavyduty vehicles and heavy-duty components qualify as originating under the
NAFTA.
applicable.
2.1 RVC Percentage Requirement for a Good of a Tariff Provision Listed in
Schedule IV, that is Subject to a Regional Value Content Requirement and is for
use in a Heavy-Duty Vehicle, Except for a Good of any of Heading Nos. 8407
and 8408 and Subheading No. 8708.40 or any of Subheading Nos. 8482.10
through 8482.80, 8483.20 and 8483.30.
a) Determine if the fiscal year of the producer started before July 2, 1997. If so,
the RVC requirement is 50%.
If the good is a light duty automotive good but the producer has not elected to
materials in accordance with subsection 11(1), 12(1), or 13(4) of the Regulations,
use the Light-Duty Automotive Goods (Non-Averaged) verification program.
b) Determine if the fiscal year of the producer started after July 1, 1997, but
before July 2, 2001. If so, the RVC requirement is 55%.
c) Determine if the fiscal year of the producer started after July 1, 2001. If so, the
2.2 Staged Heavy Duty Vehicles and Heavy Duty Components RVC
Requirement
Regional Value Content (RVC) Percentage Requirements for light-duty vehicles,
or a good provided for in any of heading 8407 and 8408 and subheading
8708.40, that is for use in a heavy-duty vehicle.
e) Determine if the fiscal year of the producer started after July 1, 1997, but
before July 2, 2001. If so, the RVC requirement is 56%.
f) Determine if the fiscal year of the producer started after July 1, 2001. If so, the
Plant
g) Determine if the plant in which the heavy-duty vehicles are produced consists
of, or includes, a new building in which the heavy-duty vehicles are assembled.
h) Determine if the heavy-duty vehicles produced meet the definition of first
prototype .
i) Determine the date of production of the first prototype and whether or not it has
been five years since the date on which the first prototype has been produced. If
greater than five years after the date on which the first prototype was produced,
use the appropriate RVC requirements as identified in Verification Procedures a)
through c).
j) Determine if the heavy-duty vehicle is of a:
i) class of motor vehicle, or
ii) marque ,
that was not previously produced by the motor vehicle assembler in the territory
of any of the NAFTA countries.
d) Determine if the fiscal year of the producer started before 2. RVC

PERCENTAGE REQUIREMENTS FOR HEAVY-DUTY AUTOMOTIVE GOODS

k) For purposes of determining the value of machinery that was never previously
used for production, and that is used in the new building (s) for the purposes of
the complete motor vehicle assembly process with respect to that vehicle, obtain
the motor vehicle assembler's fixed asset sub-ledger and the supporting invoices
for the new machinery acquired to produce the motor vehicle.
l) Using the information obtained in verification procedure h) above review the
new building(s) for the purposes of the complete motor vehicle assembly process
with respect to that motor vehicle, is at least 90% of the value of all machinery
used for the purposes of that process.
ii) Where the machinery was used previously by the producer of the motor
vehicle in the production of another good, the value of machinery is the cost of
the machinery that is recorded on the books of the producer minus accumulated
depreciation of that machinery that is recorded on those books.
iii) Where the machinery was produced by the producer of the motor vehicle, the
value of the machinery is the total cost incurred with respect to that machinery,
calculated on the basis of the costs that are recorded on the books of the
producer.
motor vehicle assembler . The RVC requirements outlined in verification
procedure 2.1 apply for the periods following five years after the date on which
the first prototype is produced.
2.5 Special RVC Requirements for Heavy-Duty Vehicles Produced in a Refit
Plant
n) Determine if the plant which the heavy-duty vehicles are produced meets the
definition of refit.
o) Determine if the heavy-duty vehicles produced in the refit plant meet the
definition of first prototype.
i) Where the machinery was acquired by the producer of the motor vehicle from
another person, the value of the machinery is the cost of that machinery that is
recorded on the books of the producer.
produced. If greater than two years after the date on which the first prototype was
produced, use the appropriate RVC requirements for heavy-duty automotive
goods as identified in Verification procedure 2.2.
q) Determine if the heavy-duty motor vehicle is of a:
i) class of motor vehicles, or
ii) marque, that was not assembled by the motor vehicle assembler in the plant
before the refit.
s) Prepare any adjustments, as required.

t) Conclude on the verification sub-objective
To ensure that the producer of the heavy-duty motor vehicles who has filed an
election to average has properly determined the goods to be used to determine
the sum of the net costs and the sum of the Value of Non-originating Materials
(VNM) that are used in the calculation of the Regional Value Content (RVC) as
set out in the NAFTA Rules of Origin Regulations.
Note: Some of these procedures require reference to the Verification Procedures
found in 11.2 of the 11. TARIFF CLASSIFICATION verification sub-program.
a) Obtain the appropriate Motor Vehicle Averaging Election filed under
Subsection 11(1) or 13(4) of the NAFTA Rules of Origin Regulations for the

through q) are met. If met, the RVC requirement is not less that 50% for two
motor vehicle assembler . The RVC requirements outlined in Verification
procedure 2.1 apply for the period following two years beginning with the date on
hich the first prototype is produced.
period under review from the Customs officer responsible for maintaining the
Motor Vehicle Averaging Elections.
i) Confirm that the election has been accepted within the required time frames.
ii) Ensure that the models of motor vehicles identified on the certificate of origin
are included in the election to average.
iii) Identify the averaging provisions elected by the producer. 3.2 Identification of
the motor vehicles produced by the motor vehicle assembler which should be
included in the election to average
i) the model line of all motor vehicles produced in the plant for which the election
is made,
ii) the class of motor vehicle for all motor vehicles produced in the plant for which
the election is made.
c) If the category of motor vehicles for averaging is made under Paragraph
11(5)(b) or 13(7)(b) of the NAFTA Rules of Origin Regulations, identify the same
class of motor vehicles produced in the same plant for which the election is
made.
d) If the category under Paragraph 11(5)(c) of the NAFTA Rules of Origin
Regulations is chosen, identify the model line of all motor vehicles produced in
the territory of the NAFTA country.
3.3. Comparison and Reconciliation of the RVC Information to the Election Filed
Under Section 11 of the NAFTA - Rules of Origin Regulations; Motor
VehicleAveraging
Ensure that: 1) the category basis of calculation as stated inthe election to
average filed with the customs administration has not been modified in any way
in the calculation of the actual Regional Value Content (RVC); and 2) all vehicles
that should be included based on the category and basis of calculation identified
in the election, are in fact included in the averaging calculation (These results will
be used as the basis for the remaining verification sub-programs).
e) Determine if the averaging category, identified in verification procedures b), c),
or d) used by the motor vehicle assembler to prepare the submission of RVC
b) If the category of motor vehicles for averaging is made under Paragraphs

11(5)(a), or 13(7)(a) of the NAFTA Rules of Origin Regulations, identify the same
model line of all motor vehicles in the same class of motor vehicle produced in
the same plant for which the election is made.
information, is the same as the one on the filed election to average. Identify any
differences.
f) Determine the motor vehicles whose costs are included in the submission of
the RVC information. Compare the motor vehicles whose costs are being
averaged to the motor vehicles whose costs should be averaged on the filed
election to average.
i.) If the category under Paragraph 11(5)(a) of the NAFTA Rules of Origin
Regulations has been chosen, ensure that:
B) the class of motor vehicle identified on the filed an election to average is the
calculation and the model line identified in verification procedure f) i) A) is within
the same class of motor vehicle and the costs associated with all motor vehicles
in that model line in that class of motor vehicle are included in the RVC
calculation, and
calculation and the class of motor vehicle identified in verification procedure f) i)
B) is all produced within the same plant and the costs associated with all motor
vehicles in that model line of motor vehicle in that class of motor vehicle in that
plant are included in the RVC calculation.
ii) If a category under paragraph 11(5)(b) of the NAFTA Rules of Origin
same class of motor vehicle are included in the RVC calculation, and,
f)ii)A) is produced within the same plant and the costs associated with all motor
calculation.
model line and the costs associated with all motor vehicles in that model line are
included in the RVC calculation, and
iii) If the category under Subsection 11(5)(c) of the NAFTA Rules of Origin
Regulations has been chosen, ensure that the model line identified on the filed
election to average is the same as the model line of the motor vehicles whose
costs are included in the RVC calculation and all motor vehicles whose costs are
included in the RVC calculation are in the same model line and the costs
associated with all motor vehicles produced in the territory of a NAFTA country in
that model line are included in the RVC calculation.
g) Ensure that the basis of calculation actually used by the producer is the same
ii) If the basis under paragraph 11(9)(b) has been elected (as identified in
verification procedure a)), and using the results of verification procedures b), c),
or d), ensure that all those motor vehicles exported to the territory of one or more
of the NAFTA countries that fall within the category chosen and are produced in
the period elected are included in the RVC calculation.
h) Ensure that the period identified on the filed election to average is the same as
the period used to calculate the RVC. This should be the producer's fiscal year.
How does this compare to the period defined in the Certificate(s) of Origin?
3.4 Comparison to the Election Filed Under Subsection 13(4) - Special RVC
with our customs administration has not been modified in any way in the
on the category and basis of calculation identified in the election to average, are
in fact included in the averaging calculation. (These results will be used as the
basis for the remaining verification sub-programs)
i) Determine the averaging category, as identified in the NAFTA Rules of Origin
Regulations, used by the motor vehicle assembler to prepare the submission of
RVC information. Ensure that the category actually averaged in the submission is
the same as the one on the filed election to average.
j) Determine the motor vehicles whose costs are included in the RVC calculation
in the submission.Compare the motor vehicles whose costs are being averaged
in the submission to the motor vehicles whose costs should be averaged based
on the filed election to average.
i) If the basis under paragraph 11(9)(a) has been elected (as identified in
verification procedure a)), and using the results of verification procedures b), c),
or d) as applicable, ensure that all motor vehicles that fall within the category
chosen and are produced (for domestic use and for exportation) in the period
i) If a category under Paragraph 13(7)(a) has been chosen, ensure that:

model line and the costs associated with all motor vehicles in that model line are
included in the RVC calculation, and
calculation and the model line identified in Verification procedure
calculation and the class of motor vehicle identified in Verification procedure j) i)
B) is all produced within the same plant and the costs associated with all motor
vehicles in that model line of motor vehicle in that class of motor vehicle in the
same plant are included in the RVC calculation.
ii) If a category under Paragraph 13(7)(b) has been chosen, ensure that :
calculation and the class of motor vehicle identified in Verification procedure
j)ii)A) is produced within the same plant and the costs associated with all motor
calculation.
k) Ensure that the basis of calculation actually used by the producer is the same
i) If the Paragraph 13(8)(a) basis of calculation has been elected as identified in
verification procedure a), and using the results of the verification procedures b) or
c), as applicable, ensure that all motor vehicles that fall within the category
chosen that are produced (for domestic use and for exportation) in the period
j) i) A) is within the same class of motor vehicle and the costs associated with all
motor vehicles in that model line in that class of motor vehicle are included in the
ii) If the Paragraph 13(8)(b) basis of calculation has been elected, as identified in
verification procedure a), and using the results of the verification procedures b) or
c), as applicable, ensure that all those motor vehicles exported to the territory of
one or more of the NAFTA countries that fall within the category chosen that are
produced in the period elected, are included in the RVC calculation.
l) Ensure that the period identified on the filed election to average is the same as
the period used to calculate the RVC. Ensure that the period is in accordance
with Subsection 13(4). How does this compare to the period defined in the
Certificate(s) of Origin?
3.5. General Summary Procedures
n) Prepare adjustments as required.

To ensure that the automotive parts producers who have elected to average their
net costs and values of non-originating materials have properly determined the
goods to be used to determine the sum of the net costs and the sum of the
values of non-originating materials (VNM) that are used in the calculation of the
Regional Value Content (RVC) as set out in the NAFTA Rules of Origin
Regulations.
Note 1: The following verification sub-program only applies where the company
has notified the Customs Administration in writing during the course of the
verification of their election to average under section 12 of the NAFTA Rules of
Origin Regulations. If the Customs Administration has not been notified in writing
during the course of the verification that an election to average under section 12
of the NAFTA Rules of Origin Regulations has been made, the heavy-duty
automotive goods (non-averaged) verification program is applicable. If the
company has elected to average under subsections 11(1) or 13(4) of the NAFTA
Rules of Origin Regulations use the 3. MOTOR VEHICLE AVERAGING
ELECTION verification sub-program.
Note 2: Some of the these procedures require reference to the verification
procedures performed in the 11.2 classification of the Finished Goods verification
subobjective of the 11. TARIFF CLASSIFICATION verification sub-program.
m) Conclude as to whether the averaging provisions defined by the election to


a) If the good is of a provision listed as an automotive component assembly or a
heavy-duty component inquire as to whether the producer is electing to calculate
the sum of the net costs incurred and the sum of the non-originating materials
used by the producer of the goods in accordance with section 12 of the
Regulations. If so, this program is applicable, otherwise use the heavy-duty
automotive goods non-averaged verification program.
i) Determine the models of goods by part number included in the automotive
parts averaging elections. Obtain this information in writing from the company.
iii) Compare part numbers of the models of goods under review to the certificate
of origin to ensure that any or all models or part numbers are included in t he
automotive parts averaging election.
iv) Identify the averaging provision (i.e. category and period) elected by the
producer. Obtain this information in writing from the company.
v) Where the automotive parts producer chooses a one or three month period,
determine if the producer has, at the end of the fiscal year of the motor vehicle
producer to whom the goods are sold, chose the fiscal year of that motor vehicle
producer.
4.2 Identification of the goods included in the automotive parts averaging election
b) If the category under paragraph 12(4)(a) of the Regulations is chosen by the
producer, original equipment for use in the production of light-duty vehicles, this
program is not applicable. Refer to the 4. AUTOMOTIVE PARTS AVERAGING
verification sub-program in the LIGHT-DUTY AUTOMOTIVE GOODS
(AVERAGED) verification program.
c) If the category under 12(4)(b) of the Regulations is chosen, ensure that the
goods are original equipment for use in the production of heavy-duty vehicles.
d) If the category under 12(4)(c) of the Regulations is chosen, goods are aftermarket parts, this program is not applicable. Refer to the applicable verification
programs found in Chapter 5 of the verification manual.
ii) Using the information obtained in the 11. TARIFF CLASSIFICATION

verification sub-program, ensure that all part numbers of the models identified in
i) are of the same tariff provision. In addition, all averaged goods must have the
same specific noun description for the automotive components assembly,
automotive component, sub-component, or listed materials being averaged.
e) If the category under 12(4)(d) of the Regulations is chosen, ensure that the
goods are original equipment for use in the production of a heavy-duty vehicle in
combination with after-market parts.
f) If the category under 12(4)(e) of the Regulations is chosen, ensure that the
i) original equipment for use in the production of heavy-duty vehicles and are sold
to one or more motor vehicle producers; or
ii) original equipment for use in the production of heavy-duty vehicles in
combination with after-market parts and are sold to one or more motor vehicle
producer.
i) original equipment for use in the production of heavy-duty vehicles and are
exported to the territory of one or more of the NAFTA countries;
combination with after market parts and are exported to the territory of one or
more of the NAFTA countries;
iii) original equipment for use in the production of heavy-duty vehicles and are
one or more of the NAFTA countries; pr
iv) original equipment for use in the production of heavy-duty vehicles in
countries.
h) If the verification encompasses reviewing all goods of a tariff provision
produced by the producer, ensure that all goods are included in an averaging
category. Similarly, if the verification encompasses specific good of the same
tariff provisions, ensure that only those goods are included in the averaging
category.
4.3 Identification of the motor vehicles producer included in the automotive parts
averaging election
i) If the category under 12(4)(b) of the Regulations is elected, where the goods
are:
i) original equipment for use in the production of heavy-duty vehicles:
g) If the category under 12(4)(f) of the Regulations is chosen, ensure that the

B) Determine if all motor vehicle producer(s) have the same fiscal year end(s);
in b) have all been accounted for.
j) If the category under 12(4)(d) of the Regulations is elected, where the goods
are:
i) original equipment for use in the production of heavy-duty vehicles in
combination with after-market parts:
k) If the category under 12(4)(e) of the Regulations is elected, where the goods
are:
i) original equipment for use in the production of heavy duty vehicles and are sold
to one or more motor vehicle producers :
have the same fiscal year end(s);
in b) have all be accounted for: or
producers:
A) Determine the motor vehicle producer(s) included in the election to average ;
B) Determine if all motor vehicle producer(s) have the same fiscal year end(s):
C) Confirm the sales of the parts to the produce(s) to ensure he goods identified
in b) have all been accounted for ; or
l) If the category under 12(4)(f) of the Regulations is elected, here the goods are:
i) original equipment for use in the production of heavy-duty vehicles and re sold
to one or more motor vehicle producers and are exported to the territory of one or
more of the NAFTA countries:
A) Determine the motor vehicle producer(s) included it the averaging election;
B) Determine if all motor vehicle producers) included in the election to average

countries:
C) confirm the sales of the parts to the producer(s) to ensure the goods identified
4.4 Identification of the country(ies) of export included in the automotive parts
averaging election
m) If the category under 12(4)(f) of the NAFTA Rules of Origin Regulations is
chosen, if the goods are:
i) original equipment for use in the production of heavy-duty vehicles and are
exported to the territory of one or more of the NAFTA countries.
averaging calculation is correct.
C) Confirm that sales of the parts to the producer(s) to ensure the goods
identified in b) have all been accounted for: or

combination with after market parts and are exported to the territory of one or
more of the NAFTA countries.
averaging calculation is correct:
iii) original equipment for use in the production of heavy-duty vehicles and are
iv) original equipment for use in the production of heavy-duty vehicles in
countries:
A) Determine the territory of one or more NAFTA countries and goods included in
4.5 Verification of the period elected by the producer
n) If the category under paragraph 12(4)(b) of the NAFTA Rules of Origin
Regulations is chosen, ensure that the period elected is calculated over any
month, any consecutive three month period that is evenly divisible into the
number of months of the producer's fiscal year remaining at the beginning of the
period, or the fiscal year of the motor vehicle producer to whom those goods are
sold.
i) By means of industry reports or inquiries in writing, confirm the fiscal year(s) of
identified in verification procedure a); or
producer did to change the period to the fiscal year of the motor vehicle producer
to whom those goods are sold.
i) By means of industry reports or inquiries in writing, confirm the fiscal year(s) of

ii) Where the producer chooses one or three month period, ensure that the same
duration is chosen for:
identified in verification procedure a); or B) the remainder of the fiscal year of the
automotive parts producer where such producer did to change the period to the
fiscal year of the motor vehicle producer to whom those those goods are sold.
p) i) If the category under paragraph 12(4)(e) of the NAFTA Rules of Origin
Regulations is chosen and the goods are only original equipment for the use in
the production of heavy-duty vehicles and are sold to one or more motor vehicle
producers, ensure that the period elected is calculated on any month, any
consecutive three month period, or the fiscal year of the motor vehicle
A) By means of industry reports or inquiries in writing, confirm the fiscal year(s) of
B) Where the producer chooses one or three month period, ensure that the same
I) the remainder of the fiscal year of the motor vehicle producer to whom those
o) If the category under paragraph 12(4)(d) of the NAFTA Rules of Origin

Regulations is chosen and some of the goods are heavy-duty automotive goods
but none of the goods are light-duty automotive goods, ensure that the period
elected is calculated over any month, any consecutive three month period, or the
fiscal year of the motor vehicle producer to whom these goods are sold.
II) the remainder of the fiscal year of the automotive parts producer where such
to whom those those goods are sold.
ii) If the category under paragraph 12(4)(e) of the NAFTA Rules
of Origin Regulations is chosen and the goods are original equipment for use in
the production of heavy-duty vehicles in combination with after-market parts and
are sold to one or more motor vehicle producers ensure that the period elected is
calculated on any month, any consecutive three month period, or the fiscal year
of the motor vehicle producers(s) to whom the goods are sold.
q) i) If the category under paragraph 12(4)(f) of the NAFTA Rule of Origin
the production of heavy-duty vehicles and are exported to the territory of one or
more NAFTA countries, ensure that the period elected is calculated on any
month, any consecutive three month period or the fiscal year of the motor vehicle

ii) If the category under paragraph 12(4)(f) of the NAFTA Rules of Origin
Regulations is chosen and the goods are original equipment for use in the
production of heavy-duty vehicles in combination with after-market parts and are
exported to the territory of one or more NAFTA countries, ensure that the period
elected is calculated any month, any consecutive three month period or the
fiscal year of the motor vehicle producer(s) to whom the goods are sold.
iii) If the category under paragraph 12(4)(f) of the NAFTA Rules or Origin
the production of heavy-duty vehicles, are sold to one or more motor vehicle
producers and are exported to the territory of one or more NAFTA countries,
ensure that the period elected is calculated on any month, any consecutive three
month period, or the fiscal year of the motor vehicle producer(s) to whom the
goods are sold.

iv) If the category under paragraph 12(4)(f) of the NAFTA Rules of Origin
Regulations is chosen and the goods are original equipment for use in the
production of heavy-duty vehicles in combination with after-market parts, are sold
to one or more motor vehicle producers and are exported to the territory of one or
more NAFTA countries, ensure that the period elected is calculated on any
month, any consecutive three month period, or the fiscal year of the motor
4.6 Comparison and reconciliation of the submission of RVC
Information
r) Ensure that the goods and period as identified in the election to average
obtained in verification procedure a) has not been modified in any way in the
calculation of the actual RVC.
s) Conclude as to whether the averaging provisions defined by the election to
t) Prepare adjustments as required.
5.REVIEW OF THE MANAGEMENT OF INFORMATION SYSTEM

To ensure the Management of Information System (MIS) used to develop the
Regional Value Content calculation is reliable and accurate.
a) Obtain the relevant information concerning the Management of Information
System (MIS) gathered through the 7. PLANT TOUR verification sub-program.
Identify the areas of concern with respect to the MIS. Consider using the "Review
of Policies, Procedures and Internal Controls Checklist" (See Appendix F) to
assist in identifying concerns.
c) Obtain the independent auditor's report. Review this report to assess the
reliance the auditors placed on the MIS.
d) Interview the personnel responsible for the MIS. Assess their knowledge of
Electronic Data Processing (EDP) and the importance the organization places on
controls within the MIS.
e) Document the MIS. Use the policies and procedures manual and the
interviews with the MIS personnel as a guide.
i) Document how the Bill of Materials is created within the system. Document
how the following items are entered into the system:
A) engineering documents/specifications (including changes to engineering
specifications)
C) development of standards for costing purposes (i.e. materials, labor and
overhead standards).
A) how are orders for motor vehicles entered into the system
D) how are material stock reports (i.e. KAN-BAN) and picking lists generated
b) Obtain and review the policies and procedures manual. Identify the areas of
concern with respect to the MIS.
E) inventory (i.e. purchase from supplier(s), receipt, transfer to production, workin-process, finished goods, shipment of finished goods)
iii) Document how the actual costs are recorded in the system. Include a review
of payments for materials inventory, direct and indirect labor, manufacturing
overhead and all other costs included in the total cost calculation.
f) Document the controls inherent in the MIS (i.e. the general and application
controls). Ensure adequate controls over materials inventory, production, labor,
overhead, etc.
i) General Controls

D) system testing;
G) system documentation standards -- program documentation, operations
documentation, user documentation.
A)handling errors;
C)file protection;
Review information pertaining to the organization controls and standard

operating procedures. Review the systems development and documentation
controls. This includes:
A) control methodology (exposures resulting from errors and irregularities,
management control objectives, system objectives, role of controls in EDP
systems)
B) audit trail;
Review the on-line entry, processing and output controls. This includes controls
to ensure:

G) errors detected in output are properly corrected and resubmitted to data
processing on a timely basis.
To conduct a preliminary review of the submitted RVC information in order to
identify risks that require further verification.
a) Obtain from company officials supporting RVC information for the goods under
review.
b) Review the costs provided in the submission of RVC information to determine
if they are reflective of actual costs (as opposed to estimates that would have
been used in the election to average).
c) Ensure that all calculations provided with the information are correct. Ensure
that the appropriate RVC percentage requirement has beenused by the
company. Ensure that the good has met the RVC requirement based on these
calculations.
d) Ensure that all the non-originating materials (i.e., materials that do not meet
their required rule of origin) and materials of unknown origin have met the
e) Review the labor and overhead information provided. Identify any excluded
costs incorrectly included in the RVC calculation.
g) Conduct risk analysis /ratio analysis on the total value for materials, labor and
overhead in relation to the RVC requirement.
7. PLANT TOUR
To obtain an understanding of the entire operations of the verification company
(i.e. manufacturing, assembly, warehouse, accounting, etc.).
a) Obtain an Organization Chart. Ensure all operations and or departments
whose costs are included in the total cost calculation for RVC purposes have
been reviewed and documented.
--Document the potential for costs to be included in total cost that should be
excluded (i.e. costs not directly related to the production of the automotive goods
including: sales promotion, marketing and after-sales service costs; royalties;
shipping and packing costs; and non-allowable interest costs).
b) Observe and document the existence of the goods included in the election to
average.
i) Confirm the goods to be included in the election to average are manufactured
at that production facility.
f) Identify any automotive component assembly, automotive component, subcomponent , or listed material that are imported by the company and identified as
originating materials. (Reference Schedule V)
ii) Identify other goods that should be included in the election and goods that are
included but should not be.
iii) Identify any differences that may exist with respect to the tariff classification of
the goods under review.
c) Where the producer designates an intermediate material review the assembly
process and observe the completed intermediate material (IM). Conclude on
whether or not the IM is a self-produced material. This information will be used in
8. INTERMEDIATE MATERIALS DESIGNATION verification sub-program.
e) Observe and document the Research and Development and/or Engineering

Operations.
--Document any concerns with respect to the potential allocation problems of
costs not directly related to the goods included in the averaging calculation.
f) Observe and document the warehouse operations (i.e. receiving material
inventory, storing material inventory and storing of finished goods).
i) Document any concerns with respect to the tariff classification of materials for
which there may be classification differences.
iii) Document any concerns with respect to the source of materials (i.e. dual
sourcing, markings on materials, fungible materials, etc.) noted during the plant
tour, especially automotive component assembly, automotive component, subcomponent, and listed materials
iv). Document any concerns with respect to the potential for costs being included
in the RVC calculation that are not directly attributable to the goods included in
the averaging calculation.
v). Document any concerns with respect to the shipping of finished goods (i.e.
any costs of shipping and packing that may be included in the net cost
calculation).
vi) Document any concerns with respect to the inventory and turnover of finished
goods.
d) Observe and document any concerns with regard to any possible NonQualifying Operations (i.e. unacceptable production or pricing practice used to
circumvent the Rules of Origin) noted during the plant tour. This information will
be used in 19. Non-Qualifying Operations sub-program.
g) Observe and document the production/manufacturing operations. Ensure each

in-house manufacturing and sub-assembly operations have been documented
(i.e. stamping, engine production, axle production, etc.)
i). Document any concerns with respect to the out-sourcing of
manufacturing/production or sub-assembly operations. Evaluate whether assists
may be provided to the out-sourced producers. This information will be used in
14. VALUE OF MATERIALS verification sub-program.
ii). Document any concerns with respect to the potential for costs being included
in the RVC calculation that are not directly attributable to the goods included in
the averaging calculation.
i) Observe and document the Management of Information System Operations.

Inquire as to the type of management reports that are produced (i.e. bills of
materials, production reports, labor reports, material stock reports, etc.). This
information will be used in 5. REVIEW OF THE MANAGEMENT OF
INFORMATION SYSTEM verification sub-program.
The objectives of this verification sub-program are: 1) To determine if the
intermediate material(s) (IM) designation, made by the heavy duty automotive
goods producer, is in accordance with Paragraph 10(9)(a) and Subsections 7(4)
and 7(19) of the NAFTA Regulations; 2)Where the Specific Rule of Origin for the
IM requires that the non-originating materials making up the IM undergo a tariff
classification change, that the tariff classification change requirement is met; 3)
Where the Specific Rule of Origin requires that the IM meet a Regional Value
Content (RVC), that the RVC requirement is met.; 4) document any self produced
materials and containers and self produced accessories spare parts and tools
designated as an IM.
Complete this sub-program only if the producer designates a self-produced
intermediate material(s) (IM) in accordance with Paragraph 10(9)(a) and
Subsection s 7(4) and 7(19) of the NAFTA Regulations.
8.1 Review of the IM Designation for Compliance With Paragraph 10(9)(a)
h) Observe and document the financial accounting operations. Ensure the

materials ordering, receiving, inventory flow, direct labor costing, indirect material
costing and overhead allocation determination are all documented.
a) Document all Intermediate Material (IM) designations made by the company.

b) Review the company designated HTS number and description of the
intermediate material to ensure that the description in the Harmonized Tariff
System of the NAFTA Party does not describe a heavy-duty component or subcomponent.
c) Is the I M designation within the requirements of Paragraph 10(9)(a) of the
NAFTA Regulations? An IM designation will be considered meeting the
Paragraph 10(9)(a) requirements where the self-produced material is a material
other than a heavy-duty component or sub-component and no other materials
which are other than a heavy-duty component or sub-component that is subject
to a RVC requirement and is incorporated into that I M is also designated by the
producer as an IM.
8.2 HTS Classification of the IM

e) Obtain the correct tariff classification and Rule of Origin for the IM from the
11.TARIFF CLASSIFICATION verification sub-program.
8.3 Tariff Classification Change Requirements for the IM
f) Obtain the information with respect to the Tariff Classification for the I M from
the 11.TARIFF CLASSIFICATION verification sub-program.
8.4 Review of the RVC Requirements of the IM
g) Inquire of the company officials as to how the value of the intermediate
material was determined. See Subsection 7(6) of the NAFTA Regulations. Are all
costs reasonably allocated to the IM according to Schedule VII.
h) Ensure that material, labor, overhead costs etc. allocated to the Intermediate
Material are not double counted in the respective costs related to the final good.
(i.e. the net cost of the good should be reduced to the extent of the IM
designation). This information will be used in sub-programs 14. VALUE OF
MATERIALS and 15. VALUE OF COSTS OTHER THAN MATERIALS
i) Perform the RVC requirement on the IM using the net cost method. Refer to
sub-program 17. CALCULATION OF THE RVC verification sub-program for
determining the RVC using the net cost content calculation.
d) Conclude on the Intermediate Material designation for compliance with

Paragraph 10(9)(a).
j) If more than one intermediate material has been identified, insure that, where
the IM is subject to a RVC requirement, no other self-produced material subject
to a RVC requirement is used in the production of that IM.
k) Conclude as to whether the IM is an originating material.
l) If an intermediate material is determined to be originating, calculate the nonoriginating value in the total cost of the IM and carry forward that value, as an
originating cost, to be subtracted from the VNM (if not already reduced).
a) Obtain all of the bills of materials (BOMs) for the goods that should be
included in the averaging election. (Refer to 3. MOTOR VEHICLE AVERAGING
ELECTION and 11. TARIFF CLASSIFICATION verification sub-programs.)
b) Verify the mathematical accuracy of the BOMs.
c) Obtain from 5. REVIEW OF THE MANAGEMENT OF INFORMATION
SYSTEM verification sub-program, the description of the system for the BOMs
and any related documentation. If necessary, review the policy and procedures
manual for the BOM with respect to the definition of the BOM, use of the BOM,
what is reported on the BOM, who and when changes are made to the BOM, etc.
d) Compare the models of the BOMs to the averaging election to ensure they are
included in the election. Identify any differences.
e) Sort the BOMs into the various models (goods) subject to averaging.
f) Obtain the volume of sales to the U.S. (and/or Canada or Mexico) for each
model of goods subject to averaging. Calculate the percentage of sales by both
volume and dollar value within each model.
--Obtain the production reports for each model and compare to the volumes of
sales as provided by the company.
--Documents any concerns with respect to goods produced in a different period
and being sold/shipped in the period under review.
To ensure the bill(s) of materials (BOM) of the goods used in the averaging
calculation are complete and accurate throughout the verification period.
g) To ensure the BOMs are complete, select a sample of bills of materials (BOM)
to:
i). compare the BOM to engineering documents/specifications (i.e. compare parts
and quantity to be included in the good);
ii) compare the part numbers, descriptions and values, to picking lists used to
obtain parts for the production from inventory;
iii) compare the bills of materials to product literature;
iv) review the sourcing of materials for consistency among the bills of materials.
vi) Document any differences. Obtain explanations from the company.

h) To ensure that the standard costs for materials on the BOM are consistent
throughout the year:
i) review the company's standard cost accounting policies;
ii) inquire of company officials if there have been changes in the production
process or the standard costs during the year;
iii) compare a sample of the BOMs to other BOMs for the same model from a
different date during the year. If any differences are found discuss with company
officials.
IN THE RVC CALCULATION
To ensure that the list of materials used in the averaged RVC calculation for net
costs and value of non-originating materials is complete and accurate.
Note: The 9. BILL OF MATERIALS verification sub-program will have to be
completed before proceeding with these verifications procedures
v) Compare the BOMs to other BOMs of similar goods (i.e. use professional
judgment to ensure all materials on the BOM are incorporated into the good and
to ensure there are no missing materials that should be incorporated into the
good).
a) Obtain the listing of materials and any additional supporting documentation

used by the producer in the RVC calculation of the Net Costs (NC) and Value of
Non-originating Materials (VNM). This listing should contain all the materials
used on the production of all the final goods subject to the averaging provisions
for the period under review.
b)Verify the mathematical accuracy of the materials list. Compare the totals
reported on the listing to the total value of materials included in the net cost
calculation and the value of non-originating materials in the submission of the
RVC information.
-Based on responses to the above, assess their knowledge of the NAFTA, the
NAFTA Rules of Origin Regulations, and specifically the motor vehicle averaging
provisions (if applicable ).
d) Match this listing with the general ledger and/or audited financial statements. If
non-averaged goods are also produced, ensure the materials used to produce
those goods are not included in this list.
e) Perform tests on the list of materials such as the following:
i) using production reports and average costs, recalculate the total of the value of
materials included in the averaging calculation;
ii) select a sample of materials and recalculate the value of materials using
average/standard values.
f) Select a sample of bills of materials included in the averaging calculation and
i) compare the description of the BOM to the list of originating goods to ensure
they are listed;
ii) using the production reports, ensure the quantity of materials on the list of
materials is appropriate.
g) Select a sample of materials from the list of materials included in the
averaging calculation and perform the following:
i) compare the description per the list of materials to the BOM to ensure they are
used in the goods to be averaged;
c)Interview the person(s) responsible for developing this listing. Inquire as to how
the list of materials was developed (i.e. how did the company ensure that only
the materials used in the production of the motor vehicles subject to the
averaging provisions are included on the list).
ii) using production reports, ensure the quantity on the list is appropriate for the
materials used in the goods to be averaged.
h) Identify any accessories, spare parts and tools, packaging materials and
containers for retail sale, and packing materials and containers for shipment, to
be disregarded for evaluating the tariff classification change requirement. Provide
this information to the person responsible for the 11. TARIFF CLASSIFICATION
verification sub-program. Provide the information concerning packing materials
and containers for shipment to the person responsible for the 15. VALUE OF
COSTS OTHER THAN MATERIALS and 14. VALUE OF MATERIALS
i) Conclude on the verification sub-objective
To ensure that the heavy duty automotive good is properly classified under the
Harmonized Tariff System (HTS) of tariff classification, and to ensure the correct
rule of origin is applied.
To classify all materials which would not meet the necessary tariff classification
change as required by the Specific Rule of Origin (Schedule I of the Uniform
Regulations) applicable to the good if they were non-originating materials.
To identify and classify all automotive component assemblies, automotive
components , sub-components and listed materials together with any other nonoriginating materials used by the producer in the production of the good in order
to establish the Value of Non-originating Materials (VNM) in accordance with
Section 10 of the Regulations.
11.1. General Introductory Procedures:
a) Interview the person(s) responsible for tariff classification to establish how the
classifications of the good and the materials were determined. Obtain any rulings
that the company has received from other customs administrations.
b) Document the potential for fungible materials while performing the procedures
in this verification sub-program.
c) Obtain information from the company pertaining to the de minimis calculation
when the company has applied the de minimis provisions to qualify the goods. To
evaluate de minimis, refer to the verification procedures outlined in Chapter 5 of

this verification (audit) manual.
d) To aid in the completion and accuracy of 12. SOURCE OF MATERIALS
verification sub-program, note data on the material suppliers, if you come across
this information while performing the verification procedures of this sub-program.
11.2 Classification of the Finished Goods and Intermediate Materials
f) Obtain from 7. PLANT TOUR verification sub-program information with respect

to the production of the goods or the IM. Physically inspect the good during a
plant tour to aid in confirming the correct classification number and rule of origin
of the finished goods and IMs.
g) Ensure that the goods and I Ms under review are properly classified in the
RVC information on the election to average. The good and/or IM classification
should be classified as applicable, to the Tariff Heading (4th digit), Subheading
(6th digit), or where required by the Specific Rule of Origin the Item (8th digit) level
of the Party?s HTS.
Where the tariff number is in doubt, take pictures, drawings, samples to the
appropriate specialist for a classification.
h) Identify the Specific Rule of Origin for the "Heavy Duty Automotive Goods" and
I M under review.
-Prepare a conclusion on the tariff classification declared by the company for the
goods or the I M under review.
i) Ensure that the goods are included in the class of motor vehicles as elected by
the producer (if applicable).
j) Does the specific rule of origin of the good require that the materials undergo a
change in tariff classification ? If no, go to procedure
11.4 within this verification sub-program . If yes, continue.
11.3 Classification of Materials for Tariff Classification Change Requirement
Only:
e) Obtain and review documentation on the goods and IM including; bills of

materials, public brochures, engineering specifications, invoices, bills of lading,
owner's manual, catalogues and verify if it is consistent with the tariff
classifications provided for the goods under review. Review the export
documents for the Harmonized Tariff System (HTS) number for the goods being
verified.
To be completed where the non-originating materials included in the Heavy Duty

Automotive Goods or IM are required to undergo a tariff classification change.
k) Analyze the Specific Rule of Origin for the good or IM identified in verification
procedure h) to determine the tariff classification of the materials that would not
meet the required tariff classification change if they were non-originating
materials.
l) Obtain an accurate description of the materials used in the production of the
goods, by physical examination, reviewing supplier parts catalogue, engineering
documents, purchase orders, and/or supplier contracts. Document any selfproduced materials designated in accordance with subsection 4(8) of the NAFTA
n) Identify those materials which would not meet the tariff classification change
requirement if they were non-originating. The conclusion on the tariff
classification change requirement will be performed in verification procedure g) in
the 12. SOURCE OF MATERIALS verification sub-program.
11.4 Identification of Materials Used or Incorporated In the Good for VNM
Purposes
o) Using the list of materials incorporated into the goods subject to averaging,
obtain an accurate description of the materials by physical examination,
reviewing supplier parts catalogues, engineering documents and/or supplier
contracts. Identify:
i) material that are automotive component assemblies, automotive components,
sub-components, listed materials and all other non-originating materials;
ii) For automotive component assemblies, identify the potential automotive
components , sub-components, and listed materials;
iii) For automotive components, identify the potential sub-components and listed
materials;
iv) For sub-components , identify the potential listed materials.
m) For the goods being exported to the country performing the verification,
classify all materials in the list of materials, except those identified as
accessories, spare parts and tools; packaging materials and container for retail
sale and packing materials and containers for shipment to the level required for
tariff classification change requirement. Note: Obtain this information from the 10.
LIST OF MATERIALS USED TO CALCULATE THE VALUE OF MATERIALS IN
THE RVC CALCULATION verification sub-program.
p) Prepare a working paper to document all the information on the materials,

used or incorporated into the goods subject to the averaging calculation at any
level of production, that are identified above.
--the origin of materials which would not meet the tariff classification change as
required by the Specific
--the source of all materials or sub-materials that are automotive component

assemblies, automotive components, sub-components, and listed materials,
used or incorporated in the good in order to establish the value of non-originating
materials (Section 10 of the Regulations) especially the ones claimed as
originating materials by the producer or his supplier.
a) Obtain the list of materials reported as originating which if failing to originate,
would not meet the tariff classification change required by the Specific Rule of
Origin ( Schedule I of the Regulations). This list should be obtained from the 11.3
TARIFF CLASSIFICATION OF MATERIALS FOR Tariff classification change
REQUIREMENT ONLY of the 11. TARIFF CLASSIFICATION verification subprogram.
b) Confirm the origin of these materials by reviewing the Certificates of Origin or
supplier statements obtained by the producer and/or by reviewing the purchase
order, invoice, and the receiving documents.
c) Physically inspect these materials to verify markings or any indications which
might indicate that the materials are non- originating.
d) Assess if the 7% De Minimis Rule can be applied if there are non- originating
materials that do not meet the required tariff classification change (see
verification procedure f) in the 14. VALUE OF MATERIALS verification subprogram.
Rule of Origin (Schedule I of the Regulations) if the materials were nonoriginating; and,
e) Assess the need to send supplier confirmations for the purposes of

determining the origin of materials for the tariff classification change requirement
f) Conclude as to whether the tariff classification change requirement has been
satisfied.
g) Obtain the complete list of materials identified in the Identification of Materials
Used or Incorporated in the Good for VNM Purposes in the 11. TARIFF
CLASSIFICATION verification sub-program. Add all other originating high value
materials to this list.
h) From the list obtained in Verification procedure g):
ii) verify if the source of the above materials could be valid, by looking at the
industry profile documentation, and other information for similar goods (i.e.,
Could these materials be imported?);
iii) interview company officials responsible for determining the origin of materials
as found in the information response. Ask hat procedures they used to verify the
source of the materials. Document strengths and weaknesses of the manner in
which the company identified non-originating materials;
iv) if the company has received certificates of origin and/or supplier statements to
verify the source of the materials, review them and determine if they are
adequate (if not adequate these items may be considered high risk items for
confirmation purposes).
i) Obtain information from the exporter's policy and procedures manuals and
complete a plant tour to assist in identifying the source of materials. Physically
inspect the materials to verify markings or any indications which might indicate if
they were imported. Coordinate this work with that performed in verification
procedure h)ii).
j) While conducting the plant tour and through inquiry of management, identify
any part of the production process that may be sub-contracted to another
company.
k) Review the concerns raised during the 7. PLANT TOUR verification subprogram.
i) select a sample of the materials which the exporter has claimed as originating
(including those materials which may contain sub-materials);
l) Obtain a list of suppliers for all materials. For the sample selected in verification
procedure h) i) perform the following:
i) determine whether any of the suppliers have companies in a non-NAFTA
country, or if the suppliers are U.S., Canadian or Mexican distributors (the
materials from these suppliers will be considered high-risk for confirmation
purposes);
ii) inquire of company officials if there were any supplier changes during the
period under review, or were any materials sourced from more than one supplier.
The Approved Vendor List or the history of the engineering specifications may
provide evidence of supplier changes;
m) Determine whether the 11. TARIFF CLASSIFICATION verification subprogram identified any materials that were designated as originating by the
exporter but were in fact imported from a non-NAFTA country , i.e. obtain
information from supplier catalogues and observation of markings during the
plant tour.
n) Select a sample of originating materials from the list obtained in Verification
procedure h) and perform the following:
i) scan the purchase invoice, any attached shipping documents, and bank
endorsement stamp on the canceled check to determine whether they support
the exporter's claim for the source (and value) of the material;
ii) select materials from this sample to verify markings and coordinate this work
with that performed in verification procedure i;
iii) follow up on any contradictory observations;
iv) prepare a working paper to control the confirmation process and to document
results.
o) Select a sample of the non-originating materials from the list obtained in
verification procedure g) and determine if they are:
i) self-produced;
ii) acquired by the producer;
iii) imported directly by the producer;
iv) imported by a person other than the producer.
iii) determine whether there are any fungible (look for dual sourced materials)
materials. Examine the parts and supplier lists, the Approved Vendor List, and
inquire as to whether the same material is sourced from both a supplier from a
NAFTA country and a non-NAFTA country, and if they source parts from
distributors. (This information will be used in the 13. INVENTORY
MANAGEMENT SYSTEM verification sub-program ).
Obtain supplier statement for the acquired non-originating materials. This

information will be used in the 14. VALUE OF MATERIALS sub-program.
p) Compare any supplier certificates of origin or supplier statements obtained
through the verification to the list of materials in 10. LIST OF MATERIALS USED
TO CALCULATE THE VALUE OF MATERIALS IN THE RVC CALCULATION
q) Evaluate the need to expand sampling procedures.
r) Determine if the origin and VNM of any of the materials need to be confirmed.
--Any verification of material suppliers should involve the following :

i) send confirmations to high risk suppliers who are distributors, for high dollar
value materials, or suppliers known to import parts from outside the territory, or
where the reliability of the certificates of origin or the suppliers certifications on
file with the exporter and/or producer are questionable;
ii) find information on the suppliers in the exporter and/or producer
correspondence files and purchase records, i.e. addresses, contact person,
phone numbers, etc.;
iii) ensure that confirmations are sent out to all suppliers if there is more than one
supplier of a material or if suppliers were changed during the period under
review;
iv) follow up with the supplier to obtain a completed confirmation, this may be
telephone within a predetermined time frame to ensure that all the completed
confirmations are received;
v) review the confirmations once they are received from the suppliers and
compare the information on the confirmations with the information on the
certificates of origin and/or supplier certifications filed with the exporter and/or
producer. Confirmations for which there are no response or insufficient
information will result in the material being considered non- originating for tariff
classification change and VNM purposes;
vi) determine if supplier confirmation letters should be sent to the suppliers of the
suppliers of the exporter and/or producer, because there are materials which
require further verification ;
vii) after reviewing the supplier confirmation, consideration should be given to
conducting a restricted supplier verification at the suppliers premises based on
s) Select suppliers from the list identified in g) from whom supplier confirmations
will be obtained to confirm the origin of: 1) the materials claimed by the company
or its supplier to be originating (and/or to verify VNM); or 2) materials that if found
to be non-originating would not meet the tariff classification change requirements
in Schedule I of the Regulations and that have been claimed as being originating
by the company.
evidence gathered to date. However, such visits will have to be discussed with
and approved by the appropriate Customs official prior to making any
arrangements;
viii) prepare a working paper to control the confirmation process and to document
the results ; and
ix) prepare a letter to each supplier subject to the confirmation process, notifying
them of whether or not the material was found to be originating.
12.4 GENERAL SUMMARY PROCEDURE
t) Ensure that all verification adjustments required as a result of the sourcing
To determine if an applicable inventory management method is in place when
fungible materials (physically separated or commingled) are used in the
production of a good, or when fungible goods are physically combined or mixed
in inventory, potentially to identify the origin of a specific shipment of goods.
In terms of fungible materials used in the production of heavy-duty automotive
goods, an inventory management method must identify originating versus nonoriginating materials for the purposes of the tariff classification change
requirement. Also, for the purposes of the RVC requirement, an inventory
management method must, for a material that is an: automotive component;
automotive sub-component ; automotive component assembly; and listed
material identify the origin of those materials and for all materials that have more
than one supplier, identify the different VNM values.
If an acceptable inventory management method does not exist, for the purposes
of the tariff classification change requirement, all fungible materials will be
considered to be non-originating, and, for the purposes of the RVC requirement,
the total value of all fungible materials identified as a risk above will be included
in the calculation of VNM.
Note that the existence of fungible materials does not automatically require that
this verification program be applied, as the exporter/producer may choose to
treat, for the purposes of the tariff classification change requirement, all fungible
materials as non-originating, and, for the purposes of the RVC requirement, the
total value of all fungible materials as part of VNM.
a) Obtain from verification procedure l)iii in the 12. SOURCE OF MATERIALS

verification sub-program, a listing of identified fungible materials.
b) Determine the impact on the origin of the goods under review should the
inventory management system be found to be not acceptable. When fungible
materials exist, evaluate the impact in terms of the tariff classification change
requirement (consider the use of the de minimis provision) by reviewing
11.TARIFF CLASSIFICATION verification sub-program, as well as in terms of the
Regional Value Content requirement by reviewing 14.VALUE OF MATERIALS
verification sub-program and reviewing 17. CALCULATION OF THE REGIONAL
VALUE CONTENT verification sub-program. If the impact is significant, proceed
with the evaluation of the inventory management system.
d) Document the inventory management system from beginning to end (i.e.

purchasing, receiving, storage of materials, removal of materials from storage
into production of goods, storage of goods and removal of goods from storage for
shipment of goods).
e) If Specific Identification was used, ensure that fungible materials (goods) were
physically segregated, or ensure the existence of an origin identifier.
f) If FIFO was used, review the company's receipts and withdrawals from the
origin or supplier, as applicable, first received were considered to be the fungible
g) If LIFO was used, review the company's receipts and withdrawals from the
origin or supplier, as applicable, last received was considered to be the fungible
h) If the average method was used, ensure that the ratio was calculated and
applied correctly.
i) Ensure whichever method that was chosen, including the averaging period in
the case of the averaging method, that it was used from the time it was chosen to
the end of the fiscal year. Has the system changed since the inception of
NAFTA?
j) Ensure that the company correctly determined the materials, identified by origin
or by supplier, as applicable, in its opening inventory by:
c) Determine which of the following inventory management systems outlined in

the NAFTA Regulations - Schedule X the company used for the fungible
materials (goods): Specific Identification, FIFO, LIFO, and the Average Method
that add up to the amount of fungible materials in opening inventory at the time
an inventory method is chosen;
(goods) in opening inventory, identified by origin of the supplier, as applicable.

records. (Can test a variety of periods, materials (goods) and production
processes.)
i) the inventory management system used by the Company is acceptable and
meets all the requirements of Schedule X of the Regulations; or
the goods under review; or
system - document the impact on the origin of the goods under review.
calculated in accordance with the NAFTA.

14.1 General Valuation Procedures:
a) Using the information obtained with the 5. REVIEW OF THE MANAGEMENT
INFORMATION SYSTEM verification sub-program assess the internal controls in
place to preserve the quality and accuracy of the data available by reviewing:
policy and procedures manuals with respect to the purchase of materials; internal
auditor's reports; the setting of standards and identification of variances. Further
assessment of internal controls can be made by performing a walk-through of the
purchasing and receiving function, and documenting the flow of information by
tracing material requisitioning, ordering, receiving and reporting returns,

producer. Determine if the procedure used to value materials is in accordance
with the Regulations.
ii) Identify all additions to cost included in valuing the materials (freight,
insurance, packing and other costs incurred in transporting the materials such as
duties and brokers charges, including in-house broker costs). Apply the
appropriate verification procedures to the costs being examined (examine
invoices, calculations, standard costs, etc.).
iv) Where materials are imported, verify that if the values of materials are in the
same currency as the currency of the country of the person who provided the
supplier statement is located. See Section 3 of the Regulations.
d) Identify any related suppliers and determine if the materials purchase price
was affected by the relationship, and if an adjustment will be required.
transfers and/or transfer payments from the company to the parent to identify any
possible assists.
non-related companies, i.e., obtain a price list from the producer listing suppliers,
same valuation method used for all the materials, i.e., do they use the same
method for determining the value of non-originating materials and originating
materials?
prices, and materials.

iii) Review correspondence between the company and the related suppliers. Is
there a possibility that the relationship affected the value used?
these variances (actual and standard cost) are material and adjust the value of
14.3 Value of Materials to be Included in Net Cost:

g) Verify that all materials included in the net cost calculation are valued in
accordance with Section 7 of the Regulations. The value of materials calculated
in accordance with NAFTA includes the following regardless of whether the
applicable value is the customs value of the material or the transaction value with
respect to the transaction value with respect to the transaction in which the
producer acquired the material: freight, insurance and packing and all other costs
incurred in transporting the material to the location of the producer; duties and
taxes paid or payable with respect to the materials in the territory of one or more
of the NAFTA countries, unless they were refunded or waived; customs
brokerage fees (including in-house services); waste and spoilage resulting from
the use of the material in the production (minus the value of reusable scrap).
commissions, except buying commissions; elements (assists) supplied to the
seller by the producer (materials; tools, dies, molds and other indirect materials;
engineering, development, artwork, design work, and plans and sketches
performed outside the country in which the producer is located) royalties;
subsequent proceeds that accrue to the seller. The value of materials also
includes accessories, spare parts, tools, packaging materials and containers for
retail.
Obtain the value of the IM from the 8. INTERMEDIATE MATERIALS
f) If there are non-originating materials that do not meet the required tariff
classification change review the value of the sub-materials. Where the value of
the sub-materials in the material (determined in accordance with Section 7 of the
Regulations) is less than or equal to 7% of the transaction value (or total cost of
the good, if the transaction value is unacceptable), the de minimis rule can be
applied (See verification procedure d) in the 12. SOURCE OF MATERIALS
verification sub-program).
h) Review the values of materials reported with the information response and
assess if these amounts seem reasonable by comparison with other RVC
information of similar goods.
i) Inquire into the results of the 10. LIST OF MATERIALS USED TO
CALCULATE THE VALUE OF MATERIALS IN THE RVC CALCULATION
verification sub-program, and take them into account while conducting the
remaining verification procedures.

books and records.
k) For the purpose of calculating the RVC, verify that the value of all materials
calculated in accordance with Section 7 of the Regulations used or incorporated
into the final goods are included in the net cost. Ensure that the value of
intermediate materials or the VNM as outlined in Section 10 of the Regulations is
not double counted in the total cost of the good.
l) Prepare a workpaper to ensure that all adjustments required for materials as a
result of value of materials verification procedures have been recorded.
m) Conclude as to whether the value of materials is correct and consistent
throughout the verification period.
14.4 Value of Non-Originating Materials:
The Value of Non-originating Materials (VNM) for Heavy Duty Automotive Goods
calculated in accordance with Section 10. Although Section 10 includes all the
j) Select (Consider obtaining sufficient audit coverage) a sample of high risk

materials for valuation purposes.(High risk for valuation purposes would be
fungible materials; or originating materials that if found to be non-originating
would make the good non-originating for RVC purposes. All materials should also
be checked for correct valuation since originating materials that are overvalued
and non-originating materials that may be undervalued would cause an
overstatement of the RVC percentage.)
materials which make up the VNM of the heavy duty automotive good, on an
actual audit not all sections may apply.
n) Obtain the list of materials developed in the 12. SOURCE OF MATERIALS
verification sub-program. Obtain the list of materials, and the value of the
materials, contained in the intermediate material election, if applicable, from the
o) Select a sample of high risk materials and determine the VNM by reviewing
commercial invoices, and customs invoices, and by applying the relevant
valuation methods: (Consider materiality in terms of closeness to RVC
requirement)
i) VNM is the total cost of the self-produced listed material which is the result of
allocating costs on the basis of Schedule VII. If this basis is used for the VNM
stop here, if this basis is not used go on to verification procedure p) ii);
ii) VNM is the aggregate of each cost of the self-produced listed material which is
the result of allocating costs on the basis of Schedule VII. If this basis is used for
the VNM stop here, if this basis is not used go on to verification procedure p)
iii).
iii) VNM is the sum of A) and B) where:
A) For non-originating materials that were imported by the producer of the listed
material, the VNM is the customs value of the non-originating materials plus, to
the extent not included, the additional costs listed in Paragraph 10(2)(c) to
10(2)(f).
Note to verification procedure p)iii)A) : For reference purposes,
NAFTA Regulation Paragraphs 10(2)(c) through 10(2)(f) includes:
--freight, insurance and packing and all other costs incurred in transporting the
material to the location of the producer, Paragraph 10(2)(c)
--duties and taxes paid or payable with respect to the material in the territory of
p) Did the heavy duty automotive goods producer self-produce a non-originating

listed material that is used by himself in the production of the good (Paragraph
10(1)(a) of the Regulations)? -If no, proceed to verification procedure q) .If yes,
continue with verification procedures p)i), p)ii) and piii), to determine the value of
the non-originating material (VNM). (Verification procedures p)i) and p)ii) will
apply independently to each material meeting the description of this verification
procedure.)
waived, refunded, refundable, or otherwise recoverable including credit against

duty or tax paid or payable, Paragraph 10(2)(d);
--customs brokerage fees (including the cost of in-house customs brokerage and
customs clearance services, incurred with respect to the material in the territory
of one or more of the NAFTA countries, Paragraph 10(2)(e);
--waste and spoilage resulting from the use of the material in the production of
the good, minus the value of any reusable scrap or by-product, Paragraph
10(2)(f);
Note to verification procedure p): the VNM costs of p)iii) will only include the
costs of acquiring the non-originating material and will be less than the costs
determined in accordance with verification procedure p) i) above which include
originating costs.
q) Did the heavy duty automotive goods producer acquire and use in the
production of the good, a non-originating listed material, produced in the territory
of a NAFTA country (Paragraph 10(1)(b))? -If no, proceed to verification
procedure r). If yes, continue with this verification procedure to q) i) and q) ii) to
determine the value of the non-originating listed material. (Verification procedure
q)i) and q) ii) apply independently to each material meeting the description of this
verification procedure )
i) Where no statement was provided by the supplier to the heavy duty goods
producer, the VNM of the listed material is based on the price paid or payable
(according to Schedule VIII), plus to the extent not included, the additional costs
listed in Paragraph 10(2)(c) through (f). For a description of the additional costs
see the Note to Verification procedure p)ii)A):
ii) Where a statement(s) was provided to the heavy duty goods producer in
accordance with q)ii)A) and/or q)ii)B) by the producer of the listed material, the
VNM is the sum of the values of A) and/or B) depending on the response to A)
and B) below.
Note to q)ii): Statements provided by this verification procedure (both q) ii)A)
and/or q) ii)B) are subject to the review noted in verification procedure z) of this
Sub-objective.
B) For non-originating materials that were not imported by the producer of the
listed material (i.e. acquired by the producer of the listed material from a supplier)
the VNM is: the price paid or payable for the non-originating material according to
paragraph 10(2)(a) or 10(2)(b) (according to Schedule VIII) plus, to the extent not
included, the additional costs listed in Paragraphs 10(2)(c) through (f). For a
description of these costs see the Note: to verification procedure p)iii)A))
A) Did the producer of the listed material import the non-originating materials
himself? If yes continue; if no go to B).
-Did the listed material statement report VNM as the customs value of the nonoriginating material plus, to the extent not included, the additional costs listed in
Paragraph 10(2)(c) to 10(2)(f). (For a description of these costs see the Note:
Verification procedure p)ii)A).
B) Did the producer of the listed material acquire the non-originating materials
from a supplier located in the same NAFTA country?
-Did the listed material statement detail the costs incurred with respect to the
transaction in which the non-originating materials were acquired from a person
located in the same NAFTA country?
Note to verification procedure q): Statements provided in accordance with

verification procedures q)ii)A) and/or q)ii)B) will allow the heavy duty automotive
producer to include in the VNM only the value of the non-originating materials
that were used in the production in the non-originating listed material.
r) Did the heavy duty automotive goods producer use a, listed material,
automotive component assembly, automotive component or sub-component that
was imported from outside the territories of the NAFTA countries in the
production of the good (Paragraph 10(1)(c) of the Regulations)? -If no, proceed
to s). If yes, continue with verification procedures r) i) and r) ii) to determine the
VNM. (verification procedure r)i) and r) ii) apply independently to each material
meeting the description of this verification procedure).
i) Was the listed material, automotive component assembly, automotive
component, or sub-component, imported by the producer? If yes continue, if no
go to ii) below;
--VNM is the customs value of the material plus, to the extent not included in the
customs value, the additional costs listed in Paragraph 10(2)(c) to 10(2)(f). For a
description of these costs see the Note: to verification procedure p)ii)A)
ii) Was the listed material, automotive component assembly, automotive
component or sub-component not imported by the producer?
--VNM is the cost determined in accordance with Subsection 10(2) of the NAFTA
Regulations with respect to the transaction in which the heavy duty automotive
goods producer acquired the imported material from outside the territories of the
NAFTA countries from the supplier.
-Were the costs of acquiring the material in accordance with Subsection 10(2)?
s) Did the heavy duty automotive goods producer acquire and use an originating
automotive component assembly, automotive component, or sub-component any
of which contained a non-originating material, that was used by the producer in
the production of the good (Paragraph 10(1)(d))? If no, proceed to t), the next
verification procedure . If yes, continue with verification procedures s)i), s)ii),
s)iii), and s)iv), to determine the value of the non-originating material.
(Verification procedure s)i), s)ii), and s)iii) apply independently to each material
meeting the description of this verification procedure.)
A) the value of each non-originating listed material (self-produced or acquired

and produced in a NAFTA country) used in the production of the originating
material determined under the Subparagraphs and Clauses of the Regulations,
Subparagraphs 10(1)(a)and 10(1)(b). Refer to verification procedures p) and q)
B) The value of each non-originating material (which is a listed material,
automotive component assembly, automotive component, or sub-component that
is imported from outside the territories of the NAFTA countries) incorporated into
the originating material (automotive component assembly,
automotive component, or sub-component) determined under the Subparagraphs
of Paragraph 10(1)(c) of the NAFTA Regulations.
C) The value of each non-originating listed material used in production of a
material referred to in Paragraph 10(1)(e) (i.e. non-originating automotive
component assembly, automotive component, or sub-component produced in the
NAFTA territory that is acquired by the producer) that is used in the production of
the originating material determined under the Subparagraphs and Clauses of
Paragraph 10(1)(a) and (b) of the NAFTA Regulations. Refer to verification
procedures p) and q)
D) Where the value of the non-originating listed material referred to in C) of this
verification procedure and used in the production of a non-originating automotive
component assembly, automotive component or sub-component that is used in
the production of the originating material, is not included in C), the value of that
automotive component assembly, automotive component or sub-component, is
determined under Subsection 10(1)(e)ii) (i.e. Subsection 10(2) with respect to the
transaction in which the producer acquired the material). Note to verification
procedure s) i).:A statement provided by this verification procedure is subject to
the review noted in verification procedure z) ,
i) Does the producer of the good have a statement signed by the person from
whom the originating material was acquired that states the sum of the values
determined (under Paragraphs 10(1)(a), (b), (c), and (e)) by the producer of the
originating material for each non-originating material referred to in A) through D)
as follows, that is/are incorporated into that originating material? If yes, VNM is
the sum of:
ii) If the material is subject to a Regional Value Content requirement and the
producer has a statement, signed by the person from whom the producer
acquired that material, that states the regional value content requirement of the
material, the VNM shall be; An amount equal to the number resulting from
applying the following formula:
VM x (1 - RVC)
Where:
Subsection 10(2), with respect to the transaction in which the producer of the
good acquired the material, and
Note to verification procedure s)ii): Statements provided by these verification

procedures are subject to the review noted in verification procedure y).
iii) If the producer has none of the statements described in verification
procedures s)i), s)ii), and s)iii), the VNM is the value of that automotive
component assembly, automotive component, or sub-component , is determined
in accordance with Subsection 10(2) of the NAFTA Regulations with respect to
the transaction in which the producer acquired the material.
t) Did the heavy duty automotive goods producer acquire and use in the
production of the good, a non-originating automotive component assembly,
automotive component or sub-component produced in the territory of a NAFTA
country (Paragraph 10(1)(e))? -If no, proceed to verification procedure u). If yes,
continue with verification procedures t)i), and t)ii) to determine the VNM. (Note:
verification procedure t)i), and t)ii) apply independently to each material meeting
the description of this verification procedure.
whom the non-originating material was acquired, that states the sum of the
values of non-originating materials incorporated into that non-originating material,
determined by the producer of the non-originating material in accordance with
Paragraphs 10(1)(a), (b), (c), (d), and (f). This procedure is subject to verification
procedure z) of this Sub-objective.
Note to verification procedure t)i): A statement provided by this verification
procedure is subject to the review noted in verification procedure z) of this Subobjective.
RVC is the regional value-content of the acquired material, expressed as a

decimal.
ii) If the producer does not have a statement described above, the value of the
non-originating automotive component assembly, automotive component, or subcomponent, should be determined in accordance with Subsection 10(2) with
respect to the transaction in which the producer acquired the material;
u) Where the heavy duty automotive goods producer used a non-originating
material in the production of a good not referred to in
i) where the non-originating material is imported by the producer of the good the
value is;
-The customs value of that non-originating material plus, to the extent not
included in the customs value, the costs referred to in Paragraphs 10(2)(c) to
10(2)(f). For a description of these costs see the Note: to verification procedure
p) ii) A)
ii) where the non-originating material is not imported by the producer of the good
i.e. (acquired by the goods producer from a supplier) the value is:
--The value of that non-originating material in accordance with Subsection 10(2)
with respect to the transaction in which the producer acquired the material.
Note to verification procedure u): This verification procedure covers all nonoriginating materials other than a listed material; automotive component
assembly; automotive component; or sub-component .Thus automotive goods
including by not limited to hoses, gaskets, metal stampings, and extruded
plastics: 1) not produced in a NAFTA country; or 2) produced in a NAFTA country
but failing to meet the Rules of Origin; will not originate and should be included in
the VNM of the automotive good.
v) Determine whether all costs incurred in transporting materials have been
selecting a sample of transactions involving purchases of material from the
NAFTA countries.
Paragraphs (10)(1)(a), (b), (c), or (e), of the NAFTA Regulations (i.e. did the
goods producer use a non-originating material other than a non-originating listed
material; automotive component assembly; automotive component; or subcomponent ) in the production of the good (Paragraph 10(1)(f) -Continue with
verification procedures u)i), and u)ii), to determine the value of the nonoriginating material that is used by the producer in the production of the good,
(verification procedures u)i) and u)ii) apply independently to each material
iii) Prepare adjustments as required as a results of this testing. (keeping in mind
w) Determine whether duty, taxes and brokerage fees with respect to the
x) Ensure that the total VNM is adjusted for any variances that affect individual
values of non-originating materials.
y) During the verification of origin of a heavy duty automotive good where the
producer has a supplier statement in accordance with s)ii) which states the
acquired material (if an automotive component assembly; automotive
component; or sub-component referred to in the statement) is an originating
material, and during the course of an origin verification of the heavy duty
automotive good the acquired material is found not to be an originating material,
the VNM of the heavy duty automotive good with respect to the acquired material
shall be determined in accordance with Subsection 10(2) of the NAFTA
regulations with respect to the transaction in which the producer acquired it.
z) Where any person has information with regard to statements covering: 1) a
non-originating material that is acquired and incorporated into a non-originating
listed material referred to in verification procedure q) ii) of this verification
procedure; 2) non-originating materials incorporated into an originating
automotive component assembly; automotive component; or sub-component
referred to in verification procedure s) i) of this verification procedure; and 3) nonoriginating material incorporated into a non-originating automotive component
assembly, automotive component; or sub-component referred to in verification
procedure t) i) of this verification procedure; and does not allow the customs
administration to verify the information during a verification of origin, the VNM
aa) Sum the values of the non-originating materials determined in verification
procedure p) through u) subtracting any adjustments as a result of verification
procedure y), z), or other reductions., Compare the results of the sample to the
14.5 Review of the Supplier VNM Statements:
VNM initially determined by the heavy duty automotive goods producer for the
sample.
bb) Explain any discrepancies between the audit derived figure and the figure
initially reported by the heavy duty goods producer
cc) Reconcile the materials making up the VNM determined as a result of this
Sub-objective with the producers list of non-originating items; reconcile the VNM
to the list of materials. Note any excess (unreconciled) non-originating materials
in the VNM or on the list of materials.
15 VALUE OF COSTS OTHER THAN MATERIALS
SUB-OBJECTIVE
To ensure that the net cost has been determined correctly by using only eligible
costs and reasonable cost allocation methods.
a) Trace the details of the net costs reported with the RVC information to the
exporter/producer's working schedules of cost. Trace these working schedules to
b) Identify the potential for Excluded Costs including: sales promotion, marketing
and after-sales service costs; royalty; shipping and packing costs; and nonallowable interest costs; being included in the net cost of the good. Consider
whether these costs are attributable to the good, or to qualifying intermediate
materials.
c) Ensure that period costs, product costs, and other costs incurred in the
territory of one or more of the Parties are included in the net cost figure by
scanning the detail in support of the net cost values reported in the RVC
information. Ensure that the net cost does not include:
To verify that the Regional Value Content (RVC) requirement with respect to
costs other than materials (labor, overhead, excluded costs, and other costs), as
required by the NAFTA Rules of Origin Regulations, has been met where the Net
Cost Method has been used.
good. Losses are included in the net cost.
vii) cumulative effect of accounting changes reported in accordance with a
d) Review the amounts of labor and overhead included in the RVC calculation.
Reconcile these amounts into the financial statements. Are these costs
reasonably allocated to the good under review.
e) Evaluate the method(s) used to allocate common expenses to the product
under review and assess whether the method(s) used are consistent with the
recommendations in Schedule VII of the NAFTA Rules of Origin Regulations.
f) Obtain copies of agreements related to sales promotions and marketing.
g) Obtain copies of contracts related to shipping and packing costs. Review the
terms of the contracts and ensure that they were properly taken into account in
the net cost calculation.
h) Refer to 10. LIST OF MATERIALS USED TO CALCULATE THE VALUE OF
MATERIALS IN THE RVC CALCULATION verification sub-program to identify
any materials considered to be packing materials and containers for shipment
purposes. Ensure that the value for packing materials is not included in the
calculation of the net cost of the good.
i) Obtain copies of royalty agreements, technical assistance agreements, and
they were properly taken into account in the net cost calculation. Not included as
an Excluded Cost are payments under technical assistance agreements or
similar agreements that can be related to specific services such as personnel
training, engineering, tooling, etc.,
j) Obtain copies of loan agreements. Review the terms of these agreements,

k) Review the chart of accounts and the trial balance to identify those accounts
included in the net cost calculation which fall within the elements of excluded
costs and conduct the following tests:
- select a sample of costs and trace to supporting commercial documentation,
paying particular attention to journal voucher type entries; and
l) Review the chart of accounts and trial balance to identify accounts which
m) When the heavy-duty automotive goods are motor vehicles which are
produced in a new plant , obtain the value of machinery from 2. RVC
REQUIREMENTS FOR HEAVY-DUTY AUTOMOTIVE GOODS sub-program.
n) Prepare a working paper to adjust the net cost figure on the RVC information
for any excluded costs, or not allowable costs not deducted by the
exporter/producer. (Remember that excluded costs attributable to qualifying
intermediate materials remain in the calculation of net cost of the good)
16. ACCUMULATION
one (or more) of hissuppliers did so in accordance with Section 14 of the NAFTA
General
- where costs have been allocated for these costs, ensure that the method of
allocation is consistent with that recommended in Schedule VII of the NAFTA
Rules of Origin Regulations;
- where it is determined that these costs should not be included in net costs,
ensure that the reversal is only for the amount originally allocated.
that:
-all non-originating materials used in the production of the good undergo an
applicable tariff classification change and the good satisfies any applicable RVC
-the good satisfies all other rules of origin requirements.
Requirements
-In order to accumulate the production of a materials,

whether the good is an originating good the producer of the good must have a
entirely in the territory of one or more of the NAFTA countries.
-a producer of a good who chooses to accumulate is not required to accumulate
the production of all materials that are incorporated into the good;
-any information contained in the certification that concerns the value of materials
or costs shall be in the same currency as the currency of the country in which the
person who provided the statement is located.
Statement Needed
Non-Averaging of costs from accumulated production
shall be the net cost incurred by the producer of the material plus, where not
referred to in paragraphs 7(1)(c) through (e) of the Regulations (i.e., freight,
material, and

producer of the material
or
in (a) or (b) above, but does have a statement signed by a producer of a material
that is used in the production of the good that
respect to that material and d the identical materials or similar materials, divided
i) the net costs incurred by the producer of the good with respect to the material
of the Regulations (this is covered in 14. VALUE OF MATERIALS sub-program),
and

or
16. ACCUMULATION
Done
In that regard, ensure that the period of time over which the information provided
by the supplier was calculated, falls within the fiscal year of the heavy-duty
automotive goods producer.
supplier, if possible.
and

CLASSIFICATION; 12. SOURCE OF MATERIALS;13.INVENTORY
MANAGEMENT SYSTEM; 14. VALUE OF MATERIALS; 8. INTERMEDIATE
MATERIALS DESIGNATION; 17. CALCULATION OF REGIONAL VALUE
CONTENT.
exporter/producer.
VERIFICATION PROCEDURES Done

a) Obtain the value of all materials to be included in the net cost and the value of
non-originating materials. See verification sub-program 14. VALUE OF
MATERIALS.
b) Add to the value of all materials to be included in the net cost, labor, overhead,
period costs, and other costs, to be includedin the net cost of the good being
verified. See verification sub-program 15. COSTS OTHER THAN MATERIALS.
c) Subtract the value of all non-originating materials from the net cost of the
good.
d) Divide the difference in verification procedure c) of this verification procedure
by the net cost (determined in b) of the good.
e) Multiply the result obtained in d) by 100.
f) Conclude on the sub-objective.
To determine which of the goods subject to verification are originating goods
under the NAFTA Rules of Origin Regulations.
a) Determine whether the goods subject to verification originate under the
NAFTA by documenting whether the tariff classification change and/or RVC
requirements in the Specific Rule of Origin have been met. Refer to the 12.
SOURCE OF MATERIALS and 17. CALCULATION OF THE RVC verification
To determine whether the good satisfies the NAFTA Regional Value Content
requirement.
sub-programs. Prepare a working paper to document which goods originate and

which goods do not originate under the NAFTA.
b) Conclude on the sub-objective.
In regard to unacceptable production practices, circumvention consists of any

alteration or process performed on goods for the purpose of circumventing the
rule of origin requirements. For example, when the processing or assembling
performed in the territory of one Party of the NAFTA is reversed or substantially
altered after the goods have been imported into the territory of another Party, and
such processing or assembly was not performed for any commercial purpose
other than to qualify the goods for the NAFTA tariff treatment, then this will be
considered circumvention.
a) During the on-site visit, interview personnel in order to understand the
production/assembly operations of the entire plant(s) where the goods subject to
averaging are produced. Document any concerns with respect to possible nonqualifying production/assembly operations.
b) Review the previously obtained bill(s) of materials and any product literature
for the goods that are subject to averaging. Document any concerns with respect
to non-qualifying production/assembly operations.
c) Review verification sub-program 7 of this verification program entitled the
PLANT TOUR. Identify any concerns noted during the tour with respect to nonqualifying production/assembly operations.
the 20. TRANSSHIPMENT verification sub-program) and document any
concerns with respect to the finished goods being altered subsequent to
importation.
e) Prepare a written evaluation of the possible non-qualifying
production/assembly operation and assess the evidence gathered.
To ensure that the goods do not qualify as originating only by reason of a

production or pricing practice, of which the object is to circumvent the rules of
origin as set out in Chapter 4 of the NAFTA. Note: A good shall not be
considered to be an originating good where there is a preponderance of evidence
that the object of a production or pricing practice was to circumvent the Rules of
Origin.

f) When completing the remaining verification procedures for the goods subject
to averaging, are there any practice(s) that could be construed as a pricing
practice that has been implemented by the company for the purpose of
circumventing the rule of origin requirements so that the exported goods can
qualify as originating.
g) Identify major adjustments made as a result of the VALUE OF MATERIALS
verification sub-program, and document any concerns.
h) Review adjustments made to the purchases accounts at the end of the year
and the beginning of the next year. Identify any concerns.
i) Prepare a written evaluation of the non-qualifying pricing practice(s) and
assess the extent of the evidence gathered.
j) Conclude on the Non-qualifying Operations Sub-objective.

20. TRANSSHIPMENT
inspection, removal of dust that accumulates during shipment , ventilation,
units or of the goods that are spoiled or damaged and present a danger to the
VERIFICATION PROCEDURES W/P
a) Obtain and review copies of the invoices, bills of lading or waybills for the
goods subject to verification for a sample period. Document the shipping route
and all points of shipment and transshipment prior to the importation of the
goods. Determine if the goods have been conveyed directly on a through bill of
lading from the exporter to a consignee. Consider gathering information from the
importer.
b) If the goods have not been shipped directly on a through bill of lading, they
may be transshipped through an intermediate country, provided that:
19.3 Conclusion on Non-Qualifying Operations
i) the goods remain under Customs transit control in the intermediate country;
and
ii) the goods undergo no operations in the intermediary country other than the
unloading, reloading, or operations necessary to preserve the goods in good
condition such as inspection, removal of dust that accumulates during shipment,
ventilation, spreading out or drying, chilling, replacing salt, sulfur or other
aqueous solutions, replacing damaged packing materials and containers and
removal of units of the good that are spoiled, or damaged and present a danger
to the remaining units of the good or any other operation necessary to transport
the good to a NAFTA country.
20. TRANSSHIPMENT Done W/P
c) Determine whether any of the goods shipped were not produced by the
producer. Consider the potential for fungible goods. If fungible goods are found,
refer to the INVENTORY MANAGEMENT SYSTEM verification sub-program.
d) From the transshipment information requested in verification procedure b) of
this program, consider requesting that the exporter/producer develop a working
paper which shows a reconciliation of shipments of goods exported by the
exporter/producer and imported into the territory of the other NAFTA Party, taking
into account their quantities and values.
e) Conclude on the verification sub-objective.
APPENDIX R
HEAVY DUTY AUTOMOTIVE GOODS
- NON-AVERAGED
TABLE OF CONTENTS
HEAVY-DUTY AUTOMOTIVE VERIFICATION PROGRAM (NON-AVERAGED)
(Sub-programs 1 through 18)
In order to substantiate the above, request documentation from the exporter

and/or importer. Documents include, but shall not be limited to: 1) customs
receipts and release documents; 2) exporter/ producer shipment/production
records; 3) list of serial numbers or lot numbers of the goods; 4) temporary import
and corresponding export documentation; 5) research material explaining the
non-NAFTA customs operations and procedures.
DEFINITION OF TERMS (Pgs. 1-4)

HEAVY-DUTY AUTOMOTIVE GOODS WHERE THE COMPANY HAS NOT
ELECTED TO AVERAGE THE COSTS OF THESE GOODS (pg. 5-6)

5. PLANT TOUR
6.1. Review of the IM Designation for Compliance With Paragraph 10(9)(a)
6.2. HS Classification of the IM
6.3. Tariff Classification Change Requirements for the IM
6.4. Review of the RVC Requirements of the IM
8.1. General Introductory Procedures
8.2. Classification of the Finished Goods and Intermediate Materials (IMs)
8.3. Classification of Materials for Tariff Classification Requirement Only
8.4. Identification of Materials Used or Incorporated in the Good for VNM
Purposes
9.4. General Summary Procedure

GOODS
2.1 Staged RVC Requirement for a Good of a Tariff Provision Listed in Schedule
IV
2.2 Staged RVC Requirements for a Heavy-Duty Vehicles and Heavy-Duty
Components
Plant
2.5. Special RVC Requirements for Heavy Duty Vehicles Produced in a Refit
Plant

11.1 General Valuation Procedures
11.3. Value of Materials to be Included in Net Cost
11.4 Value of Non-originating Materials
11.5 Review of Supplier VNM Statements
12 . VALUE OF COSTS OTHER THAN MATERIALS
13. ACCUMULATION

16.3 Conclusion on Non-qualifying Operations
18. TRANSSHIPMENT
TO ENSURE THAT THE HEAVY-DUTY AUTOMOTIVE GOOD, WHERE AN
ELECTION TO AVERAGE HAS NOT BEEN FILED, IS AN ORIGINATING
GOOD IN ACCORDANCE WITH THE NAFTA RULES OF ORIGIN
REGULATIONS AND CONSIDERING THE SPECIAL RVC CALCULATION
REQUIREMENTS INCLUDED IN SECTION 10 (HEAVY-DUTY AUTOMOTIVE
GOODS) AND SECTION 13 (SPECIAL RVC REQUIREMENTS) OF THE NAFTA
UNIFORM REGULATIONS.
DEFINITIONS
wherever a word or group of words are used as defined, the word or words will
appear in bold print :
"Automotive Component" means a good that is referred to in Column I of an item
of Schedule V.
"Automotive Component Assembly(ies)" means a good other than a heavy-duty
vehicle that incorporates an automotive component.
vehicles:
a) motor vehicles of any of Subheading 8701.20, Tariff Items 8702.10.30 and
8702.90.30 (except for the transport of 16 or more persons), subheadings
8704.10, 8704.22, 8704.23, 8704.32 and 8704.90 and Headings 8705 and 8706,
b) motor vehicles provided for in any of Subheadings 8701.10 and 8701.30
through 8701.90,
(vehicles for transport of 15 or fewer persons) and Subheadings 8704.21 and
8704.31, and
a) a structural frame or unibody,

b) body panels,
c) an engine, a transmission and a drive train,
d) brake components,
e) steering and suspension components,
f) seating and internal trim,
g) bumpers and external trim,
h) wheels, and
i) electrical and lighting components. "First prototype" means the first motor
vehicle that
a) is produced using tooling and processes intended for the production of motor
b) follows the complete motor vehicle assembly process in a manner not
"Floor pan of a motor vehicle" means a component, comprising a single part or two or more parts
joined together, with or without additional stiffening members, that forms the base of a motor
vehicle, beginning at the firewall or bulkhead of the motor vehicle and ending

a) where there is a luggage floor panel in the motor vehicle, at the place where that luggage floor
panel begins, and
b) where there is no luggage floor panel in the motor vehicle, at the place where the passenger
compartment of the motor vehicle ends.
"Heavy-duty automotive good(s)" means a heavy-duty vehicle or a heavy-duty component.
"Heavy-duty component(s)" means an Automotive Component or automotive component
assembly that is for use as original equipment in the production of a heavy-duty vehicle.
"Heavy-duty vehicle(s)" means a motor vehicle provided for in any pf Heading 8701, Tariff Items
8702.10.30 and 8702.90.30 (vehicles for the transport of 16 or more persons), and Subheadings
8704.10, 8704.22, 8704.23, 8704.32 and 8704.90 and heading 8705, and 8706.
"Listed material(s)" means a good that is referred to in column II of an item of Schedule V.
"Model line" means a group of motor vehicles having the same platform or model name .
"Model name" means the word, group of words, letter, number or similar designation assigned to
a motor vehicle by a marketing division of a motor vehicle assembler
(a) to differentiate the motor vehicle from other motor vehicles that use the same platform design,
(b) to associate the motor vehicle with other motor vehicles that use different platform designs, or
"Motor vehicle assembler" means a producer of motor vehicles and any related person with
whom, or joint venture in which, the producer participates with respect to the production of motor
vehicles.
"New building" means a new construction to house a complete motor vehicle assembly process,
where that construction includes the pouring or construction of a new foundation and floor, the
erection of a new frame and roof, and the installation of new plumbing and electrical and other
utilities.
"Original equipment" means a material that is incorporated into a motor vehicle before the first
transfer of title or consignment of the motor vehicle to a person who is not a motor vehicle
assembler, and that is
a) a good of a tariff provision listed in Schedule IV, or
b) an automotive component assembly, automotive component, sub-component or listed material.
"Plant" means a building, or buildings in close proximity but not necessarily contiguous,
machinery, apparatus and fixtures that are under the control of a producer and are used in the
production of any of the following:
"Marque" means a trade name used by a marketing division of a motor vehicle assembler that is
separate from any other marketing division of that motor vehicle assembler.
a) light-duty vehicles and heavy-duty vehicles,

b) goods of a tariff provision listed in Schedule IV, and
c) automotive component assemblies, automotive components, sub-components, and listed
materials. "Refit" means a closure of a plant for a period of at least three consecutive months that
is for purposes of plant conversion or retooling.
Schedule V of the NAFTA Rules of Origin Regulations
Item Column I Column II
Automotive Components Listed Materials
2 For Gear boxes (transmissions) (a) for manual transmissions: transmission cases and provided
for in subheading clutch housings; clutches; internal shifting mechanisms; 8708.40 gear sets,
synchronizers and shafts; and (b) for torque convertor type transmissions: transmission cases
and convertor housings; torque convertor assemblies;gear sets and clutches; electronic
transmission controls.
"Size Category" , with respect to a light-duty vehicle, means that the total of the interior volume
for passengers and the interior volume for luggage is
(a) 85 cubic feet (2.38 m3 ) or less,
(b) more than 85 cubic feet (2.38 m3 ) but less than 100 cubic feet (2.80 m3 ),
(c) 100 cubic feet (2.80 m3 ) or more but not more than 110 cubic feet (3.08 m3 ),
(d) more than 110 cubic feet (3.08 m3) but less than 120 cubic feet (3.36 m3), or
(e) 120 cubic feet (3.36 m3) or more.
"Sub-component" means a good that comprises a listed material and one or more other materials
or listed materials.
1. ELIGIBILITY FOR THE NAFTA RULES OF ORIGIN PROVISIONS FOR HEAVY
-DUTY AUTOMOTIVE GOODS WHERE THE COMPANY HAS NOT ELECTED TO
AVERAGE THE COSTS OF THESE GOODS
1. For engines provided for in cast blocks, cast heads, fuel nozzles, fuel injector pumps, heading
8407 or 8408 glow plugs, turbochargers, superchargers, electronic engine controls, intake
manifolds, exhaust manifolds, intake valves, exhaust valves, crankshafts, camshafts, alternators,
starters, air cleaner assemblies, pistons, connecting rods and assemblies made therefrom, rotor
assemblies for rotary engines, flywheels (for manual transmissions), flexplates (for automatic
transmissions), oil pans, oil pumps, pressure regulators, water pumps, crankshaft gears,
camshaft gears, radiator assemblies, charge-air coolers.
To ensure that the good is a heavy-duty automotive good and in the case that the company has
NOT elected to average the sum of the net costs incurred and the sum of the values of nonoriginating materials used by the producer in accordance with Subsections 11(1) or 13(4) of the
Regulations.
a) Using the definition of a heavy-duty vehicle, determine whether the good is classified in one of
the tariff provisions listed in the definition of a heavy-duty vehicle and the producer has NOT filed
an election to average the sum of the net costs incurred and the values of non-originating
materials in accordance with Subsections 11(1) or 13(4) of the Regulations.
b) If the good is:
ii) for use as original equipment in the production of a heavy-duty vehicle; and
iii) the producer has not elected to average the sum of the net costs incurred and the values of
non-originating materials in accordance with Subsection 12(1) of the Regulations. If so, this
verification program is applicable.
NOTE: If the good is a heavy duty automotive good but the producer has elected to average the
sum of the net costs incurred and the values of non-originating materials in accordance with
Subsection 11(1), 12(1) or 13(4) of the Regulations, complete the Heavy-Duty Automotive Goods
(Averaged) verification program. If the good is a light-duty automotive good and the producer has
elected to average the sum of the net costs incurred and the values of non-originating materials
in accordance with subsections 11(1), 12(1) or 13(4) of the Regulations, use the Light Duty
Automotive Goods (Averaged) verification program.
1. ELIGIBILITY FOR THE NAFTA RULES OF ORIGIN PROVISION FOR HEAVY-DUTY
AUTOMOTIVE GOODS WHERE THE COMPANY HAS NOT ELECTED TO AVERAGE THE
COSTS OF THESE GOODS
If the good is a light duty automotive good but the producer has not elected to average the sum of
the net costs incurred and the values of non-originating materials in accordance with subsection
11(1), 12(1), or 13(4) of the Regulations, use the Light-Duty Automotive Goods (Non-Averaged)
If the good is not a heavy duty automotive good nor a light duty automotive good, then the
general verification programs found in Chapter 5 of the NAFTA Audit (Verification) Manual are
applicable.
2. RVC PERCENTAGE REQUIREMENTS FOR HEAVY-DUTY AUTOMOTIVE GOODS
i) an Automotive Component or Automotive Component Assembly,
To ensure that the applicable minimum Regional Value Content (RVC) percentage requirement is
used by the producer to determine whether the heavy-duty vehicles and heavy-duty components
qualify as originating under the NAFTA.
Note: If the good cannot be identified below, the special RVC percentage requirements do not
apply to it and the requirements of Schedule I are applicable.
2.1 RVC Percentage Requirement for a Good of a Tariff Provision Listed in Schedule IV, that is
Subject to a Regional Value Content Requirement and is for use in a Heavy-Duty Vehicle, Except
for a Good of any of Heading Nos. 8407 and 8408 and Subheading No. 8708.40 or any of
Subheading Nos. 8482.10 through 8482.80, 8483.20 and 8483.30.
2.2 Staged Heavy Duty Vehicles and Heavy Duty Components RVC Requirement
Regional Value Content (RVC) Percentage Requirements for light-duty vehicles, or a good
provided for in any of heading 8407 and 8408 and subheading 8708.40, that is for use in a heavyduty vehicle.
d) Determine if the fiscal year of the producer started before July 2, 1997. If so, the RVC
requirement is 50%.
e) Determine if the fiscal year of the producer started after July 1, 1997, but before July 2, 2001. If
so, the RVC requirement is 56%.
f) Determine if the fiscal year of the producer started after July 1, 2001. If so, the RVC
requirement is 62.5%.
2.3 Special RVC Requirements for Heavy-Duty Vehicles Produced in a New Plant
g) Determine if the plant in which the heavy-duty vehicles are produced consists of, or includes, a
new building in which the heavy-duty vehicles are assembled.
h) Determine if the heavy-duty vehicles produced meet the definition of first prototype .
i) Determine the date of production of the first prototype and whether or not it has been five years
since the date on which the first prototype has been produced. If greater than five years after the
date on which the first prototype was produced, use the appropriate RVC requirements as
identified in Verification Procedures a) through c).
j) Determine if the heavy-duty vehicle is of a:
i) class of motor vehicle, or
a) Determine if the fiscal year of the producer started before July 2, 1997. If so, the RVC
requirement is 50%.
b) Determine if the fiscal year of the producer started after July 1, 1997, but before July 2, 2001.
If so, the RVC requirement is 55%.
c) Determine if the fiscal year of the producer started after July 1, 2001. If so, the RVC
requirement is 60%.
ii) marque, that was not previously produced by the motor vehicle assembler in the territory of any
of the NAFTA countries.
k) For purposes of determining the value of machinery that was never previously used for
production, and that is used in the new building (s) for the purposes of the complete motor
vehicle assembly process with respect to that vehicle, obtain the motor vehicle assembler's fixed
asset sub-ledger and the supporting invoices for the new machinery acquired to produce the
motor vehicle.
l) Using the information obtained in verification procedure h) above review the producer's
calculation of the value of machinery to ensure that the value of machinery that was never
previously used for production, and that is used in the new building(s) for the purposes of the
complete motor vehicle assembly process with respect to that motor vehicle, is at least 90% of
the value of all machinery used for the purposes of that process.
ii) Where the machinery was used previously by the producer of the motor vehicle in the
production of another good, the value of machinery is the cost of the machinery that is recorded
on the books of the producer minus accumulated depreciation of that machinery that is recorded
on those books.
iii) Where the machinery was produced by the producer of the motor vehicle, the value of the
machinery is the total cost incurred with respect to that machinery, calculated on the basis of the
costs that are recorded on the books of the producer.
m) Conclude as to whether all the conditions outlined in verification procedures g) through l) are
met. If so, the RVC requirement is not less than 50% for five years after the date on which the
first prototype is produced in the plant by the motor vehicle assembler . The RVC requirements
outlined in verification procedure 2.1 apply for the periods following five years after the date on
which the first prototype is produced.
2.5 Special RVC Requirements for Heavy-Duty Vehicles Produced in a Refit Plant
n) Determine if the plant which the heavy-duty vehicles are produced meets the definition of refit.
o) Determine if the heavy-duty vehicles produced in the refit plant meet the definition of first
prototype.
p) Determine the date of production of the first prototype and whether or not it has been two years
since the date on which the first prototype has been produced. If greater than two years after the
date on which the first prototype was produced, use the appropriate RVC requirements for heavyduty automotive goods as identified in Verification procedure 2.2.
q) Determine if the heavy-duty motor vehicle is of a:
i) class of motor vehicles, or
ii) marque, that was not assembled by the motor vehicle assembler in the plant before the refit.
i) Where the machinery was acquired by the producer of the motor vehicle from another person,
the value of the machinery is the cost of that machinery that is recorded on the books of the
producer.
r) Conclude as to whether the conditions outlined in verification procedures n) through q) are met.
If met, the RVC requirement is not less that 50% for two years after the date on which the first
prototype is producedin the plant by the motor vehicle assembler . The RVC requirements
outlined in Verification procedure 2.1 apply for the period following two years beginning with the
date on which the first prototype is produced.
s) Prepare any adjustments, as required.
t) Conclude on the verification sub-objective
3. REVIEW OF THE MANAGEMENT OF INFORMATION SYSTEM VERIFICATION SUBOBJECTIVE
with respect to the MIS. Consider using the "Review of Policies, Procedures and Internal Controls
Checklist" (See Appendix F) to assist in identifying concerns.
respect to the MIS.
placed on the MIS.
C) development of standards for costing purposes (i.e. materials, labor and overhead standards).
A) how are orders for motor vehicles entered into the system

D) how are material stock reports (i.e. KAN-BAN) and picking lists generated
E) inventory (i.e. purchase from supplier(s), receipt, transfer to production, work-in-process,
i) General Controls

D) system testing;
documentation.
A)handling errors;
C)file protection;
B) audit trail;

timely basis.

To conduct a preliminary review of the submitted RVC information in order to identify risks that
require further verification.
a) Obtain from company officials supporting RVC information for the goods under review on a
shipment by shipment basis.
b) Review the costs provided in the submission of RVC information to determine if they are
reflective of actual costs .
c) Ensure that all calculations provided with the information are correct. Ensure that the
appropriate RVC percentage requirement has beenused by the company. Ensure that the good
has met the RVC requirement based on these calculations.
d) Ensure that all the non-originating materials (i.e., materials that do not meet their required rule
of origin) and materials of unknown origin used in the production of the good have met the
e) Review the labor and overhead information provided.

Identify any excluded costs incorrectly included in the RVC calculation. Ensure that all costs
allocated to the good subject to the verification are in fact actual costs incurred in the production
of such good on the specific date of production.
f) Identify any automotive component assembly, automotive component, sub-component , or
listed material that are imported by the company and identified as originating materials.
(Reference Schedule V)
g) Conduct risk analysis /ratio analysis on the total value for materials, labor and overhead in
relation to the RVC requirement.
To obtain an understanding of the entire operations of the verification company (i.e.
manufacturing, assembly, warehouse, accounting, etc.).
not directly related to the production of the automotive goods including: sales promotion,
marketing and after-sales service costs; royalties; shipping and packing costs; and non-allowable
interest costs).
b) Observe and document the existence of the goods.
i) Confirm the goods to be included in the election to average are manufactured at that production
facility.
ii) Identify any differences that may exist with respect to the tariff classification of the goods under
review.
d) Observe and document any concerns with regard to any possible Non-Qualifying Operations
during the plant tour. This information will be used in 16. NON-QUALIFYING OPERATIONS subprogram.
5. PLANT TOUR
related to the goods included in the calculation.
on materials, fungible materials, etc.) noted during the plant tour, especially automotive
component assembly, automotive component, sub-component, and listed materials
v). Document any concerns with respect to the shipping of finished goods (i.e. any costs of
vi) Document any concerns with respect to the inventory and turn-over of finished goods.
g) Observe and document the production/manufacturing operations. Ensure each in-house
manufacturing and sub-assembly operations have been documented (i.e. stamping, engine
roduction, axle production, etc.)
i). Document any concerns with respect to the out-sourcing of manufacturing/production or subassembly operations. Evaluate whether assists may be provided to the out-sourced producers.
ii). Document any concerns with respect to the potential for costs being included in the RVC
per unit are all documented.
reports, material stock reports, etc.). This information will be used in 3. REVIEW OF THE

The objectives of this verification sub-program are: 1) To determine if the intermediate material(s)
(IM) designation, made by the heavy duty automotive goods producer, is in accordance with
iv). Document any concerns with respect to the potential for costs being included in the RVC
Paragraph 10(9)(a) and Subsection 7(4) and 7(19) of the NAFTA Regulations; 2)Where the
Specific Rule of Origin for the IM requires that the non-originating materials making up the IM
undergo a tariff classification change, that the tariff classification change requirement is met; 3)
Where the Specific Rule of Origin requires that the IM meet a Regional Value Content (RVC), that
the RVC requirement is met; and 4) To document any self-produced materials and containers and
self produced accessories spare parts and tools designated as an IM.
Complete this sub-program only if the producer designates a self-produced intermediate
material(s) (IM) in accordance with Paragraph 10(9)(a) and Subsection s 7(4) & 7(19) of the
NAFTA Regulations.
6.1 Review of the IM Designation for Compliance With Paragraph 10(9)(a)
a) Document all Intermediate Material (IM) designations made by the company.
c) Is the IM designation within the requirements of Paragraph 10(9)(a) of the NAFTA

Regulations? An IM designation will be considered meeting the Paragraph 10(9)(a) requirements
where the self-produced material is a material other than a heavy-duty component or subcomponent and no other materials which are other than a heavy-duty component or subcomponent that is subject to a RVC requirement and is incorporated into that I M is also
designated by the producer as an IM.
d) Conclude on the Intermediate Material designation for compliance with Paragraph 10(9)(a).
6.2 HTS Classification of the IM
e) Obtain the correct tariff classification and Rule of Origin for the IM from the 8.TARIFF
6.3 Tariff Classification Change Requirements for the IM
f) Obtain the information with respect to the Tariff Classification for the I M from the 8.TARIFF
6.4 Review of the RVC Requirements of the IM
g) Inquire of the company officials as to how the value of the intermediate material was
determined. See Subsection 7(6) of the NAFTA Regulations. Are all costs reasonably allocated to
the IM according to Schedule VII?
h) Ensure that material, labor, overhead costs etc. allocated to the Intermediate Material are not
double counted in the respective costs related to the final good. (i.e. the net cost of the good
should be reduced to the extent of the IM designation). This information will be used in subprograms 11. VALUE OF MATERIALS and 12. VALUE OF COSTS OTHER THAN MATERIALS
b) Review the company designated HTS number and description of the intermediate material to
ensure that the description in the Harmonized Tariff System of the NAFTA Party does not
describe a heavy-duty component or sub-component.
i) Perform the RVC requirement on the IM using the net cost method. Refer to sub-program 14.
CALCULATION OF THE RVC verification sub-program for determining the RVC using the net
cost content calculation.
j) If more than one intermediate material has been identified, ensure that, where the IM is subject
to a RVC requirement, no other self-produced material subject to a RVC requirement is used in
the production of that IM.
k) Conclude as to whether the IM is an originating material.
l) If an intermediate material is determined to be originating, calculate the non-originating value in
the total cost of the IM and carry forward that value, as an originating cost, to be subtracted from
the VNM (if not already reduced).
To ensure the bill of materials (BOM) of the good under review is complete and accurate
throughout the verification period.
a) Obtain the bills of materials (BOM) and any additional supporting documentation for the good
under review used by the producer to prepare the submission of RVC information. (Refer to 8.
TARIFF CLASSIFICATION verification sub-programs.)
b) Verify the mathematical accuracy of the BOM.
c) Compare the values of the materials and the materials themselves (inventory part number and
name) on the BOM and the other supporting documentation to totals reported in the submission
of RVC information. If information concerning the origin of the materials or sourcing of the
materials is on the BOM and the supporting documentation, also compare this information to the
origin of the materials declared in the submission of RVC information.
d) Obtain from 3. REVIEW OF THE MANAGEMENT OF INFORMATION SYSTEM verification
sub-program, the description of the system for the BOM and any related documentation that is
required to complete verification procedure f). If necessary, review the policy and procedures
manual for the BOM with respect to the definition of the BOM, use of the BOM, what is reported
on the BOM, who and when changes are made to the BOM, etc.
e) To ensure that the BOM is complete:
i). compare the BOM to engineering documents/specifications (i.e. compare parts and quantity to
be included in the good);
ii). compare the part numbers, descriptions and values, to picking lists used to obtain parts for the
production from inventory (ensure this matches the inventory management method as described
in the MIS review);
iii).compare the BOM to product literature;

iv). review the sourcing of materials for consistency on the BOM.
v) Compare the BOM to a BOM of similar goods (i.e. use professional judgment to ensure all
materials on the BOM are incorporated into the good and to ensure there are no missing
materials that should be incorporated into the good).
vi) Document any differences. Obtain explanations from the company.
f) Review the company's standard cost accounting policies, if standard costs were used. If so,
ensure that the standard cost of the good has been adjusted to the actual cost of production of
the good on a per unit basis. Inquire with company officials if any differences are found.
To ensure that the heavy duty automotive good is properly classified under the Harmonized Tariff
System (HTS) of tariff classification, and to ensure the correct rule of origin is applied.
To classify all materials which would not meet the necessary tariff classification change as
required by the Specific Rule of Origin (Schedule I of the Uniform Regulations) applicable to the
good if they were non-originating materials.
To identify and classify all automotive component assemblies, automotive components , subcomponents and listed materials together with any other non-originating materials used by the
producer in the production of the good in order to establish the Value of Non-originating Materials
(VNM) in accordance with Section 10 of the Regulations.
8.1. General Introductory Procedures:
a) Interview the person(s) responsible for tariff classification to establish how the classifications of
the good and the materials were determined. Obtain any rulings that the company has received
from other customs administrations.
b) Document the potential for fungible materials while performing the procedures in this
g) Identify any accessories, spare parts and tools, packaging materials and containers for retail
sale and packing materials and containers for shipment to be disregarded for evaluating the tariff
classification change requirement. Provide this information to the person responsible for the 8.
TARIFF CLASSIFICATION verification sub-program. Provide the information concerning packing
materials and containers for shipment to the person responsible for the 12. RVC- COSTS OTHER
THAN MATERIALS and 11.VALUE OF MATERIALS verification sub-program.
c) Obtain information from the company pertaining to the de minimis calculation when the
company has applied the de minimis provisions to qualify the goods. To evaluate de minimis,
refer to the verification procedures outlined in Chapter 5 of this verification (audit) manual.
d) To aid in the completion and accuracy of the 9. SOURCE OF MATERIALS verification subprogram, note data on the material suppliers, if you come across this information while performing
the verification procedures of this sub-program.
8.2 Classification of the Finished Goods and Intermediate Materials
e) Obtain and review documentation on the good and IM including; bill of materials, public
brochures, engineering specifications, invoices, bills of lading, owner's manual, catalogues and
verify if it is consistent with the tariff classifications provided for the good under review. Review
the export documents for the Harmonized Tariff System (HTS) number for the good being
verified.
g) Ensure that the good and IMs under review are properly classified in the RVC information. The
th
good and/or IM classification should be classified as applicable, to the Tariff Heading (4 digit),
th
th
Subheading (6 digit), or where required by the Specific Rule of Origin the Item (8 digit) level of
the Party?s HTS. Where the tariff number is in doubt, take pictures, drawings, samples to the
appropriate specialist for a classification.
h) Identify the Specific Rule of Origin for the Heavy Duty Automotive Good and I M under review.
Prepare a conclusion on the tariff classification declared by the company for the good or the I M
under review.
i) Does the specific rule of origin of the good require that the materials undergo a change in tariff
classification ? If no, go to procedure 8.4 within this verification sub-program . If yes, continue.
8.3 Classification of Materials for Tariff Classification Change Requirement Only:
To be completed where the non-originating materials included in the Heavy Duty Automotive
Good or IM are required to undergo a tariff classification change.
j) Analyze the Specific Rule of Origin for the good or IM identified in verification procedure g) to
determine the tariff classification of the materials that would not meet the required tariff
k) Obtain an accurate description of the materials used in the production of the good, by physical
examination, reviewing supplier parts catalogue, engineering documents, purchase orders, and/or
supplier contracts. Document any self produced materials designated in accordance with
subsection 4(8) of the NAFTA Rules of Origin Regulations.
l) Classify all materials on the BOM, except those identified as accessories, spare parts and tools;
packaging materials and containers for retail sale and packing materials and containers for
shipment to the level required for tariff classification change requirement. Note: obtain this
information from the 7. BILL OF MATERIALS verification sub-program.
f) Obtain from 5. PLANT TOUR verification sub-program information with respect to the
production of the goods or the IM. Physically inspect the good during a plant tour to aid in
confirming the correct classification number and rule of origin of the finished goods and IMs.
m) Identify those materials which would not meet the tariff classification change requirement if
they were non-originating. The conclusion on the tariff classification change requirement will be
performed in verification procedure g) in the 9. SOURCE OF MATERIALS verification subprogram.
8.4 Identification of Materials Used or Incorporated In the Good for VNM Purposes
n) Using the BOM of the good under review, obtain an accurate description of the materials by
physical examination, reviewing supplier parts catalogues, engineering documents and/or
supplier contracts. Identify:
i) material that are automotive component assemblies, automotive components, sub-components,
listed materials and all other non-originating materials;
ii) For automotive component assemblies, identify the potential automotive components , subcomponents, and listed materials;
iv) For sub-components , identify the potential listed materials.

o) Prepare a working paper to document all the information on the materials used or incorporated
into the good subject to the verification at any level of production.
--the origin of materials which would not meet the tariff classification change as required by the
Specific
Rule of Origin (Schedule I of the Regulations) if the materials were non-originating;
--the source of all materials or sub-materials that are automotive component assemblies,
automotive components, sub-components, and listed materials, used or incorporated in the good
in order to establish the value of non-originating materials (Section 10 of the Regulations)
especially the ones claimed as originating materials by the producer or his supplier; and
-the source of originating materials for tariff treatment purposes.
a) Obtain the list of materials reported as originating which if failing to originate, would not meet
the tariff classification change required by the Specific Rule of Origin ( Schedule I of the
Regulations). This list should be obtained from the 8.3 TARIFF CLASSIFICATION OF
MATERIALS FOR TARIFF CLASSIFICATION CHANGE REQUIREMENT ONLY of the 8.
TARIFF CLASSIFICATION verification sub-program.
iii) For automotive components, identify the potential sub-components and listed materials;
b) Confirm the origin of these materials by reviewing the Certificates of Origin or supplier
statements obtained by the producer and/or by reviewing the purchase order, invoice, and the
receiving documents.
c) Physically inspect these materials to verify markings or any indications which might indicate
that the materials are non- originating.
d) Assess if the 7% De Minimis Rule can be applied if there are non-originating materials that do
not meet the required tariff classification change (see verification procedure f) in the 11. VALUE
OF MATERIALS verification sub-program.
e) Assess the need to send supplier confirmations for the purposes of determining the origin of
materials for the tariff classification change requirement.
f) Conclude as to whether the tariff classification change requirement has been satisfied.
g) Obtain the complete list of materials identified in the 8.4 IDENTIFICATION OF MATERIALS
USED OR INCORPORATED IN THE GOOD FOR VNM PURPOSES in the 8. TARIFF
CLASSIFICATION verification sub-program. Add all other originating high value materials to this
list.
h) From the list obtained in Verification procedure g):
i) select a sample of the materials which the exporter has claimed as originating (including those
materials which may contain sub-materials);
ii) verify if the source of the above materials could be valid, by looking at the industry profile
documentation, and other information for similar goods (i.e., Could these materials be imported?);
iii) interview company officials responsible for determining the origin of materials as found in the
information response. Ask what procedures they used to verify the source of the materials.
Document strengths and weaknesses of the manner in which the company identified nonoriginating materials;
iv) if the company has received certificates of origin and/or supplier statements to verify the
source of the materials, review them and determine if they are adequate (if not adequate these
items may be considered high risk items for confirmation purposes).
i) Obtain information from the exporter's policy and procedures manuals and complete a plant
tour to assist in identifying the source of materials. Physically inspect the materials to verify
markings or any indications which might indicate if they were imported. Coordinate this work with
that performed in verification procedure h)ii).
j) While conducting the plant tour and through inquiry of management, identify any part of the
production process that may be sub-contracted to another company.
k) Review the concerns raised during the 5. PLANT TOUR verification sub-program.
l) Obtain a list of suppliers for all materials. For the sample selected in verification procedure h) i)
suppliers are U.S., Canadian or Mexican distributors (the materials from these suppliers will be
considered high-risk for confirmation purposes);
ii) inquire of company officials if there were any supplier changes or were any materials sourced
from more than one supplier. The Approved Vendor List or the history of the engineering
specifications may provide evidence of supplier changes;
iii) determine whether there are any fungible (look for dual sourced materials) materials. Examine
the parts and supplier lists, the Approved Vendor List, and inquire as to whether the same
material is sourced from both a supplier from a NAFTA country and a non-NAFTA country, and if
they source parts from distributors. (This information will be used in the 10. INVENTORY
MANAGEMENT SYSTEM verification sub-program ).
n) Select a sample of originating materials from the list obtained in Verification procedure h) and
i) scan the purchase invoice, any attached shipping documents, and bank endorsement stamp on
the canceled check to determine whether they support the exporter's claim for the source (and
ii) select materials from this sample to verify markings and coordinate this work with that
performed in verification procedure i;
iii) follow up on any contradictory observations;
iv) prepare a working paper to control the confirmation process and to document results.
o) Select a sample of the non-originating materials from the list obtained in verification procedure
g) and determine if they are:
i) self-produced;
ii) acquired by the producer;
iii) imported directly by the producer;
iv) imported by a person other than the producer. Obtain supplier statement for the acquired nonoriginating materials. This information will be used in the 11. VALUE OF MATERIALS subprogram.
p) Compare any supplier certificates of origin or supplier statements obtained through the
verification procedures identified above to the BOM identified in the 7. BILL OF MATERIALS
q) Evaluate the need to expand sampling procedures.
m) Determine whether the 8. TARIFF CLASSIFICATION verification sub-program identified any

materials that were designated as originating by the exporter but were in fact imported from a
non-NAFTA country , i.e. obtain information from supplier catalogues and observation of
markings during the plant tour.
r) Determine if the origin and VNM of any of the materials need to be confirmed.
s) Select suppliers from the list identified in g) from whom supplier confirmations will be obtained
to confirm the origin of: 1) the materials claimed by the company or its supplier to be originating
(and/or to verify VNM); or 2) materials that if found to be non-originating would not meet the tariff
classification change requirements in Schedule I of the Regulations and that have been claimed
as being originating by the company.
--Any verification of material suppliers should involve the following :
i) send confirmations to high risk suppliers who are distributors, for high dollar value materials, or
suppliers known to import parts from outside the territory, or where the reliability of the certificates
of origin or the suppliers certifications on file with the exporter and/or producer are questionable;
iii) ensure that confirmations are sent out to all suppliers if there is more than one supplier of a
material or if suppliers were changed;
iv) follow up with the supplier to obtain a completed confirmation, this may be telephone within a
predetermined time frame to ensure that all the completed confirmations are received;
v) review the confirmations once they are received from the suppliers and compare the
information on the confirmations with the information on the certificates of origin and/or supplier
certifications filed with the exporter and/or producer. Confirmations for which there are no
response or insufficient information will result in the material being considered non-originating for
tariff classification change and VNM purposes;
vi) determine if supplier confirmation letters should be sent to the suppliers of the suppliers of the
exporter and/or producer, because there are materials which require further verification ;
vii) after reviewing the supplier confirmation, consideration should be given to conducting a
restricted supplier verification at the suppliers premises based on evidence gathered to date.
However, such visits will have to be discussed with and approved by the appropriate Customs
official prior to making any arrangements;
viii) prepare a working paper to control the confirmation process and to document the results ;
and
ix) prepare a letter to each supplier subject to the confirmation process, notifying them of whether
or not the material was found to be originating.
9.5 General Summary Procedure
t) Ensure that all verification adjustments required as a result of the sourcing verification
ii) find information on the suppliers in the exporter and/or producer correspondence files and
purchase records, i.e. addresses, contact person, phone numbers, etc.;
To determine if an applicable inventory management method is in place when fungible materials
(physically separated or commingled) are used in the production of a good, or when fungible
goods are physically combined or mixed in inventory, potentially to identify the origin of a specific
shipment of goods.
In terms of fungible materials used in the production of heavy-duty automotive goods, an
inventory management method must identify originating versus non-originating materials for the
purposes of the tariff classification change requirement. Also, for the purposes of the RVC
requirement, an inventory management method must, for a material that is an: automotive
component; automotive sub-component ; automotive component assembly; and listed material
identify the origin of those materials and for all materials that have more than one supplier,
identify the different VNM values.
Note that the existence of fungible materials does not automatically require that this verification
program be applied, as the exporter/producer may choose to treat, for the purposes of the tariff
classification change requirement, all fungible materials as non-originating, and, for the purposes
of the RVC requirement, the total value of all fungible materials as part of VNM.
a) Obtain from verification procedure l)iii in the 9. SOURCE OF MATERIALS verification subprogram, a listing of identified fungible materials.
b) Determine the impact on the origin of the goods under review should the inventory
management system be found to be not acceptable. When fungible materials exist, evaluate the
impact in terms of the tariff classification change requirement (consider the use of the de minimis
provision) by reviewing 8.TARIFF CLASSIFICATION verification sub-program, as well as in terms
of the Regional Value Content requirement by reviewing 11.VALUE OF MATERIALS verification
sub-program and reviewing 14. CALCULATION OF THE REGIONAL VALUE CONTENT
verification sub-program. If the impact is significant, proceed with the evaluation of the inventory
management system.
c) Determine which of the following inventory management systems outlined in the NAFTA
Regulations - Schedule X the company used for the fungible materials (goods): Specific
Identification, FIFO, LIFO, and the Average Method
d) Document the inventory management system from beginning to end (i.e. purchasing, receiving,
storage of materials, removal of materials from storage into production of goods, storage of goods
and removal of goods from storage for shipment of goods).
e) If Specific Identification was used, ensure that fungible materials (goods) were physically
segregated, or ensure the existence of an origin identifier.
If an acceptable inventory management method does not exist, for the purposes of the tariff
classification change requirement, all fungible materials will be considered to be non-originating,
and, for the purposes of the RVC requirement, the total value of all fungible materials identified as
a risk above will be included in the calculation of VNM.
first received were considered to be the fungible materials (goods), identified by origin or supplier,
last received was considered to be the fungible materials (goods), identified by origin or supplier,
h) If the average method was used, ensure that the ratio was calculated and applied correctly.
i) Ensure whichever method that was chosen, including the averaging period in
the case of the averaging method, that it was used from the time it was chosen to
the end of the fiscal year. Has the system changed since the inception of
NAFTA?
j) Ensure that the company correctly determined the materials (goods), identified
by origin or by supplier, as applicable, in its opening inventory by:
(goods) that add up to the amount of fungible materials (goods) in opening
inventory at the time an inventory method is chosen;
(goods) in opening inventory, identified by origin of the supplier, as applicable.
records.
i) the inventory management system used by the Company is acceptable and
meets all the requirements of Schedule X of the Regulations; or
the goods under review; or
system - document the impact on the origin of the goods under review.
calculated in accordance with the NAFTA.
11.1 General Valuation Procedures:

a) Using the information obtained with the 3. REVIEW OF THE MANAGEMENT
INFORMATION SYSTEM verification sub-program assess the internal controls in
place to preserve the quality and accuracy of the data available by reviewing:
policy and procedures manuals with respect to the purchase of materials; internal
auditor's reports; the setting of standards and identification of variances. Further
assessment of internal controls can be made by performing a walk-through of the
purchasing and receiving function, and documenting the flow of information by
tracing material requisitioning, ordering, receiving and reporting returns,
same valuation method used for all the materials, i.e., do they use the same
method for determining the value of non-originating materials and originating
materials?
producer. Determine if the procedure used to value materials is in accordance
with the Regulations.
ii) Identify all additions to cost included in valuing the materials (freight,
insurance, packing and other costs incurred in transporting the materials such as
duties and brokers charges, including in-house broker costs). Apply the
appropriate verification procedures to the costs being examined (examine
invoices, calculations, standard costs, etc.).
iv) Where materials are imported, verify that if the values of materials are in the
same currency as the currency of the country of the person who provided the
supplier statement is located. See Section 3 of the Regulations.
d) Identify any related suppliers and determine if the materials purchase price
was affected by the relationship, and if an adjustment will be required.
transfers and/or transfer payments from the company to the parent to identify any
possible assists.
non-related companies, i.e., obtain a price list from the producer listing suppliers,
prices, and materials.
iii) Review correspondence between the company and the related suppliers. Is
there a possibility that the relationship affected the value used?

these variances (actual and standard cost) are material and adjust the value of
f) If there are non-originating materials that do not meet the required tariff
classification change review the value of the sub-materials. Where the value of
the sub-materials in the material (determined in accordance with Section 7 of the
Regulations) is less than or equal to 7% of the transaction value (or total cost of
the good, if the transaction value is unacceptable), the de minimis rule can be
applied (See verification procedure d) in the 9. SOURCE OF MATERIALS
verification sub-program).
commissions, except buying commissions; elements (assists) supplied to the
seller by the producer (materials; tools, dies, molds and other indirect materials;
engineering, development, artwork, design work, and plans and sketches
performed outside the country in which the producer is located) royalties;
subsequent proceeds that accrue to the seller. The value of materials also
includes accessories, spare parts, tools, packaging materials and containers for
retail sale.
Obtain the value of the IM from the 6. INTERMEDIATE MATERIALS
h) Review the values of materials reported with the information response and
assess if these amounts seem reasonable by comparison with other RVC
information of similar goods.
i) Inquire into the results of the 7. BILL OF MATERIALS verification sub-program,
and take them into account while conducting the remaining verification
procedures.
11.3 Value of Materials to be Included in Net Cost:

g) Verify that all materials included in the net cost calculation are valued in
accordance with Section 7 of the Regulations. The value of materials calculated
in accordance with NAFTA includes the following regardless of whether the
applicable value is the customs value of the material or the transaction value with
respect to the transaction value with respect to the transaction in which the
producer acquired the material: freight, insurance and packing and all other costs
incurred in transporting the material to the location of the producer; duties and
taxes paid or payable with respect to the materials in the territory of one or more
of the NAFTA countries, unless they were refunded or waived; customs
brokerage fees (including in-house services); waste and spoilage resulting from
the use of the material in the production (minus the value of reusable scrap).
11.4 Value of Non-Originating Materials:

The Value of Non-originating Materials (VNM) for Heavy Duty
Automotive Goods calculated in accordance with Section 10.
Although Section 10 includes all the materials which make
up the VNM of the heavy duty automotive good, on an actual
audit not all sections may apply.
n) Obtain the list of materials developed in the 12. SOURCE OF MATERIALS
verification sub-program. Obtain the list of materials, and the value of the
materials, contained in the intermediate material election, if applicable, from the
o) Select a sample of high risk materials and determine the VNM by reviewing
commercial invoices, and customs invoices, and by applying the relevant
valuation methods: (Consider materiality in terms of closeness to RVC
requirement)
p) Did the heavy duty automotive goods producer self-produce a non-originating
listed material that is used by himself in the production of the good (Paragraph
10(1)(a) of the Regulations)? -If no, proceed to verification procedure q) .If yes,
continue with verification procedures p)i), p)ii), to determine the value of the nonoriginating material (VNM). (Verification procedures p)i), p)ii) and p)iii) will apply
independently to each material meeting the description of this verification
procedure.)
j) Select (consider obtaining sufficient audit coverage) a sample of high risk

materials for valuation purposes.(High risk for valuation purposes would be
fungible materials; or originating materials that if found to be non-originating
would make the good non-originating for RVC purposes. All materials should also
be checked for correct valuation since originating materials that are overvalued
and non-originating materials that may be undervalued would cause an
overstatement of the RVC percentage.)
books and records.
k) For the purpose of calculating the RVC, verify that the value of all materials
calculated in accordance with Section 7 of the Regulations used or incorporated
into the final goods are included in the net cost. Ensure that the value of
intermediate materials or the VNM as outlined in Section 10 of the Regulations is
not double counted in the total cost of the good.
l) Prepare a work paper to ensure that all adjustments required for materials as a
result of value of materials verification procedures have been recorded.
m) Conclude as to whether the value of materials is correct.
i) VNM is the total cost of the self-produced listed material which is the result of
allocating costs on the basis of Schedule VII. If this basis is used for the VNM
stop here, if this basis is not used go on to verification procedure p) ii);
ii) VNM is the aggregate of each cost of the self-produced listed material which is
the result of allocating costs on the basis of Schedule VII. If this basis is used for
the VNM stop here, if this basis is not used go on to verification procedure p)iii);
iii) VNM is the sum of A) and B) where:
A) For non-originating materials that were imported by the producer of the listed
material, the VNM is the customs value of the non-originating materials plus, to
the extent not included, the additional costs listed in Paragraph 10(2)(c) to
10(2)(f).
Note to verification procedure p)ii)A) : For reference purposes,

NAFTA Regulation Paragraphs 10(2)(c) through 10(2)(f) includes:
--freight, insurance and packing and all other costs incurred in transporting the
material to the location of the producer, Paragraph 10(2)(c)
--duties and taxes paid or payable with respect to the material in the territory of
waived, refunded, refundable, or otherwise recoverable including credit against
duty or tax paid or payable, Paragraph 10(2)(d);
--customs brokerage fees (including the cost of in-house customs brokerage and
customs clearance services, incurred with respect to the material in the territory
of one or more of the NAFTA countries, Paragraph 10(2)(e);
--waste and spoilage resulting from the use of the material in the production of
the good, minus the value of any reusable scrap or by-product, Paragraph
10(2)(f);
B) For non-originating materials that were not imported by the producer of the
listed material (i.e. acquired by the producer of the listed material from a supplier)
the VNM is: the price paid or payable for the non-originating material according to
paragraph 10(2)(a) or 10(2)(b) (according to Schedule VIII) plus, to the extent not
included, the additional costs listed in Paragraphs 10(2)(c) through (f). For a
description of these costs see the Note: to verification procedure p)ii)A))
Note to verification procedure p): the VNM costs of p)ii) will only include the costs
of acquiring the non-originating material and will be less than the costs
determined in accordance with verification procedure p) i) above which include
originating costs.
q) Did the heavy duty automotive goods producer acquire and use in the
production of the good, a non-originating listed material, produced in the territory
of a NAFTA country (Paragraph 10(1)(b))? -If no, proceed to verification
procedure r). If yes, continue with this verification procedure to q) i) and q) ii) to
determine the value of the non-originating listed material. (Verification procedure
q)i) and q) ii) apply independently to each material meeting the description of this
verification procedure )
i) Where no statement was provided by the supplier to the heavy duty goods
producer, the VNM of the listed material is based on the price paid or payable
(according to Schedule VIII), plus to the extent not included, the additional costs
listed in Paragraph 10(2)(c) through (f). For a description of the additional costs
see the Note to Verification procedure p)ii)A):
ii) Where a statement(s) was provided to the heavy duty goods producer in
accordance with q)ii)A) and/or q)ii)B) by the producer of the listed material, the
VNM is the sum of the values of A) and/or B) depending on the response to A)
and B) below.
Note to q)
ii): Statements provided by this verification procedure (both q) ii)A) and/or q) ii)B)
are subject to the review noted in verification procedure z) of this Sub-objective.
A) Did the producer of the listed material import the non-originating materials
himself? If yes continue; if no go to B).
-Did the listed material statement report VNM as the customs value of the nonoriginating material plus, to the extent not included, the additional costs listed in
Paragraph 10(2)(c) to 10(2)(f). (For a description of these costs see the Note:
Verification procedure p)ii)A).
B) Did the producer of the listed material acquire the non-originating materials
from a supplier located in the same NAFTA country?
-Did the listed material statement detail the costs incurred with respect to the
transaction in which the non-originating materials were acquired from a person
located in the same NAFTA country?
-Were the costs of acquiring the material in accordance with Subsection 10(2)?
Note to verification procedure q): Statements provided in accordance with
verification procedures q)ii)A) and/or q)ii)B) will allow the heavy duty automotive
producer to include in the VNM only the value of the non-originating materials
that were used in the production in the non-originating listed material.
r) Did the heavy duty automotive goods producer use a, listed material,
automotive component assembly, automotive component or sub-component that
was imported from outside the territories of the NAFTA countries in the
production of the good (Paragraph 10(1)(c) of the Regulations)? -If no, proceed
to s). If yes, continue with verification procedures r) i) and r) ii) to determine the
VNM. (verification procedure r)i) and r) ii) apply independently to each material
i) Was the listed material, automotive component assembly, automotive
component, or sub-component, imported by the producer? If yes continue, if no
go to ii) below;
--VNM is the customs value of the material plus, to the extent not included in the
customs value, the additional costs listed in Paragraph 10(2)(c) to 10(2)(f). For a
description of these costs see the Note: to verification procedure p)ii)A)
ii) Was the listed material, automotive component assembly, automotive
component or sub-component not imported by the producer?
--VNM is the cost determined in accordance with Subsection 10(2) of the NAFTA
Regulations with respect to the transaction in which the heavy duty automotive
goods producer acquired the imported material from outside the territories of the
NAFTA countries from the supplier.
s) Did the heavy duty automotive goods producer acquire and use an originating
automotive component assembly, automotive component, or sub-component any

of which contained a non-originating material, that was used by the producer in
the production of the good (Paragraph 10(1)(d))? If no, proceed to t), the next
verification procedure . If yes, continue with verification procedures s)i), s)ii),
s)iii), and s)iv), to determine the value of the non-originating material.
(Verification procedure s)i), s)ii), and s)iii) apply independently to each material
meeting the description of this verification procedure.)
whom the originating material was acquired that states the sum of the values
determined (under Paragraphs 10(1)(a), (b), (c), and (e)) by the producer of the
originating material for each non-originating material referred to in A) through D)
as follows, that is/are incorporated into that originating material? If yes, VNM is
the sum of:
A) the value of each non-originating listed material (self-produced or acquired
and produced in a NAFTA country) used in the production of the originating
material determined under the Subparagraphs and Clauses of the Regulations,
Subparagraphs 10(1)(a)and 10(1)(b). Refer to verification procedures p) and q)
B) The value of each non-originating material (which is a listed material,
automotive component assembly, automotive component, or sub-component that
is imported from outside the territories of the NAFTA countries) incorporated into
the originating material (automotive component assembly, automotive
component, or sub-component) determined under the Subparagraphs of
Paragraph 10(1)(c) of the NAFTA Regulations.
C) The value of each non-originating listed material used in production of a
material referred to in Paragraph 10(1)(e) (i.e. non-originating automotive
component assembly, automotive component, or sub-component produced in the
NAFTA territory that is acquired by the producer) that is used in the production of
the originating material determined under the Subparagraphs and Clauses of
Paragraph 10(1)(a) and (b) of the NAFTA Regulations. Refer to verification
procedures p) and q)
D) Where the value of the non-originating listed material referred to in C) of this
verification procedure and used in the production of a non-originating automotive
component assembly, automotive component or sub-component that is used in
the production of the originating material, is not included in C), the value of that
automotive component assembly, automotive component or sub-component, is
determined under Subsection 10(1)(e)ii) (i.e. Subsection 10(2) with respect to the
transaction in which the producer acquired the material). Note to verification
procedure s) i).:A statement provided by this verification procedure is subject to
the review noted in verification procedure z) ,
ii) If the material is subject to a Regional Value Content requirement and the
producer has a statement, signed by the person from whom the producer
acquired that material, that states the regional value content requirement of the
material, the VNM shall be; An amount equal to the number resulting from
applying the following formula:
VM x (1 - RVC)
Where:
Subsection 10(2), with respect to the transaction in which the producer of the
good acquired the material, and RVC is the regional value-content requirement
for the acquired material, expressed as a decimal.
Note to verification procedure s)ii): Statements provided by these verification
procedures are subject to the review noted in verification procedure y).
iii) If the producer has none of the statements described in verification
procedures s)i), s)ii), and s)iii), the VNM is the value of that automotive
component assembly, automotive component, or sub-component , is determined
in accordance with Subsection 10(2) of the NAFTA Regulations with respect to
the transaction in which the producer acquired the material.
t) Did the heavy duty automotive goods producer acquire and use in the
production of the good, a non-originating automotive component assembly,
automotive component or sub-component produced in the territory of a NAFTA
country (Paragraph 10(1)(e))? -If no, proceed to verification procedure u). If yes,
continue with verification procedures t)i), and t)ii) to determine the VNM. (Note:
verification procedure t)i), and t)ii) apply independently to each material meeting
the description of this verification procedure.
whom the non-originating material was acquired, that states the sum of the
values of non-originating materials incorporated into that non-originating material,
determined by the producer of the non-originating material in accordance with
Paragraphs 10(1)(a), (b), (c), (d), and (f). This procedure is subject to verification
procedure z) of this Sub-objective.
Note to verification procedure t)i): A statement provided by this verification
procedure is subject to the review noted in verification procedure z) of this Subobjective.
ii) If the producer does not have a statement described above, the value of the
non-originating automotive component assembly, automotive component, or subcomponent, should be determined in accordance with Subsection 10(2) with
respect to the transaction in which the producer acquired the material;
u) Where the heavy duty automotive goods producer used a non-originating
material in the production of a good not referred to in Paragraphs (10)(1)(a), (b),
(c), or (e), of the NAFTA Regulations (i.e. did the goods producer use a nonoriginating material other than a non-originating listed material; automotive
component assembly; automotive component; or sub-component ) in the
production of the good (Paragraph 10(1)(f) -Continue with verification procedures
u)i), and u)ii), to determine the value of the non-originating material that is used
by the producer in the production of the good, (verification procedures u)i) and
u)ii) apply independently to each material meeting the description of this
verification procedure).
i) where the non-originating material is imported by the producer of the good the
value is;
-The customs value of that non-originating material plus, to the extent not
included in the customs value, the costs referred to in Paragraphs 10(2)(c) to

10(2)(f). For a description of these costs see the Note: to verification procedure
p) ii) A)
ii) where the non-originating material is not imported by the producer of the good
i.e. (acquired by the goods producer from a supplier) the value is:
--The value of that non-originating material in accordance with Subsection 10(2)
with respect to the transaction in which the producer acquired the material.
v) Determine whether all costs incurred in transporting materials have been

selecting a sample of transactions involving purchases of material from the
NAFTA countries.
iii) Prepare adjustments as required as a results of this testing. (keeping in mind
w) Determine whether duty, taxes and brokerage fees with respect to the
x) Ensure that the total VNM is adjusted for any variances that affect individual
values of non-originating materials.
11.5 Review of the Supplier VNM Statements:
y) During the verification of origin of a heavy duty automotive good where the
producer has a supplier statement in accordance with s)ii) which states the
acquired material (if an automotive component assembly; automotive
component; or sub-component referred to in the statement) is an originating
material, and during the course of an origin verification of the heavy duty
automotive good the acquired material is found not to be an originating material,
the VNM of the heavy duty automotive good with respect to the acquired material
z) Where any person has information with regard to statements covering: 1) a
non-originating material that is acquired and incorporated into a non-originating
Note to verification procedure u): This verification procedure covers all nonoriginating materials other than a listed material; automotive component
assembly; automotive component; or sub-component .Thus automotive goods
including by not limited to hoses, gaskets, metal stampings, and extruded
plastics: 1) not produced in a NAFTA country; or 2) produced in a NAFTA country
but failing to meet the Rules of Origin; will not originate and should be included in
the VNM of the automotive good.
listed material referred to in verification procedure q) ii) of this verification

procedure; 2) non-originating materials incorporated into an originating
automotive component assembly; automotive component; or sub-component
referred to in verification procedure s) i) of this verification procedure; and 3) nonoriginating material incorporated into a non-originating automotive component
assembly, automotive component; or sub-component referred to in verification
procedure t) i) of this verification procedure; and does not allow the customs
administration to verify the information during a verification of origin, the VNM
12 RVC- VALUE OF COSTS OTHER THAN MATERIALS

To verify that the Regional Value Content (RVC) requirement with respect to
costs other than materials (labor, overhead, excluded costs, and other costs), as
required by the NAFTA Rules of Origin Regulations, has been met where the Net
Cost Method has been used.
a) Trace the details of the net costs reported with the RVC information to the
exporter/producer's working schedules of cost. Trace these working schedules to
b) Identify the potential for Excluded Costs including: sales promotion, marketing
and after-sales service costs; royalty; shipping and packing costs; and nonallowable interest costs; being included in the net cost of the good. Consider
whether these costs are attributable to the good, or to qualifying intermediate
materials.
c) Ensure that period costs, product costs, and other costs incurred in the
territory of one or more of the Parties are included in the net cost figure by
scanning the detail in support of the net cost values reported in the RVC

aa) Sum the values of the non-originating materials determined in verification
procedure p) through u) subtracting any adjustments as a result of verification
procedure y), z), or other reductions., Compare the results of the sample to the
VNM initially determined by the heavy duty automotive goods producer for the
sample.
bb) Explain any discrepancies between the audit derived figure and the figure
initially reported by the heavy duty goods producer
cc) Reconcile the materials making up the VNM determined as a result of this
Sub-objective with the producers list of non-originating items; reconcile the VNM
to the list of materials. Note any excess (unreconciled) non-originating materials
in the VNM or on the list of materials.
information. Ensure that the net cost does not include:

good. Losses are included in the net cost.
vii) Cumulative effect of accounting changes reported in accordance with a
d) Review the amounts of labor and overhead included in the RVC calculation.
Trace the labor, overhead and general and administrative costs included in the
RVC calculation to supporting documentation for the good under review.
Ensure none of the costs include excluded costs.
e) Obtain copies of agreements related to sales promotions and marketing.
f) Obtain copies of contracts related to shipping and packing costs. Review the
terms of the contracts and ensure that they were properly taken into account in
the net cost calculation.
g) Refer to 7. BILL OF MATERIALS verification sub-program to identify any
materials considered to be packing materials and containers for shipment
purposes. Ensure that the value for packing materials is not included in the
calculation of the net cost of the good.
h) Obtain copies of royalty agreements, technical assistance agreements, and
they were properly taken into account in the net cost calculation. Not included as
an Excluded Cost are payments under technical assistance agreements or
similar agreements that can be related to specific services such as personnel
training, engineering, tooling, etc.,
i) Obtain copies of loan agreements. Review the terms of these agreements,
j) Review the chart of accounts and trial balance to identify accounts which
k) When the heavy-duty automotive goods are motor vehicles which are
produced in a new plant , obtain the value of machinery from 2. RVC
REQUIREMENTS FOR HEAVY-DUTY AUTOMOTIVE GOODS sub-program.
n) Prepare a working paper to adjust the net cost figure on the RVC information
for any excluded costs, or not allowable costs not deducted by the
exporter/producer. (Remember that excluded costs attributable to qualifying

intermediate materials remain in the calculation of net cost of the good)
13. ACCUMULATION
one (or more) of his suppliers did so in accordance with Section 14 of the NAFTA
General
Requirements
-In order to accumulate the production of a materials,
material, and
whether the good is an originating good the producer of the good must have a
entirely in the territory of one or more of the NAFTA countries.
-a producer of a good who chooses to accumulate is not required to accumulate
the production of all materials that
are incorporated into the good;
-any information contained in the certification that concerns the value of materials
or costs shall be in the same currency as the currency of the country in which the
person who provided the statement is located.
Statement Needed

that:
-all non-originating materials used in the production of the good undergo an
applicable tariff classification change and the good satisfies any applicable RVC
-the good satisfies all other rules of origin requirements.

in (a) or (b) above, but does have a statement signed by a producer of the
material that is used in the production of the good that
respect to that material and d the identical materials or similar materials, divided
Non-Averaging of costs from accumulated production

shall be the net costs incurred by the producer of the material plus, where not
referred to in paragraphs 7(1)(c) through (e) of the Regulations (i.e., freight,
producer of the materials
or
of the Regulations (this is covered in 14. VALUE OF MATERIALS sub-program),
and
supplier, if possible.
CLASSIFICATION; 9. SOURCE OF MATERIALS;10.INVENTORY
MANAGEMENT SYSTEM; 11. VALUE OF MATERIALS; 6. INTERMEDIATE
MATERIALS DESIGNATION; 14. CALCULATION OF REGIONAL VALUE
CONTENT.
exporter/producer.
To determine whether the good satisfies the NAFTA Regional Value Content
requirement.
or
and
a) Obtain the value of all materials to be included in the net cost and the value of
non-originating materials. See verificationsub-program 11. VALUE OF
MATERIALS.
b) Add to the value of all materials to be included in the net cost, labor, overhead,
period costs, and other costs, to be included in the net cost of the good being
verified. See verificationsub-program 12. RVC-COSTS OTHER THAN
MATERIALS.
c) Subtract the value of all non-originating materials from thenet cost of the good.
d) Divide the difference in verification procedure c) of this verification procedure
by the net cost (determined in b) of the good.
e) Multiply the result obtained in d) by 100.
f) Conclude on the sub-objective.
To determine which of the goods subject to verification are originating goods
under the NAFTA Rules of Origin Regulations.
a) Determine whether the goods subject to verification originate under the
NAFTA by documenting whether the tariff classification change and/or RVC
requirements in the Specific Rule of Origin have been met. Refer to the 9.
SOURCE OF MATERIALS and 14. CALCULATION OF THE RVC verification
sub-programs. Prepare a working paper to document which goods originate and
which goods do notoriginate under the NAFTA.
b) Conclude on the sub-objective.
To ensure that the goods do not qualify as originating only by reason of a
production or pricing practice, of which the object is to circumvent the rules of
origin as set out in Chapter 4 of the NAFTA. Note: A good shall not be
considered to be an originating good where there is a preponderance of evidence
that the object of a production or pricing practice was to circumvent the Rules of
Origin. In regard to unacceptable production practices, circumvention consists of
any alteration or process performed on goods for the purpose of circumventing
the rule of origin requirements. For example, when the processing or
assembling performed in the territory of one Party of the NAFTA is reversed or
substantially altered after the goods have been imported into the territory of
another Party, and such processing or assembly was not performed for any
commercial purpose other than to qualify the goods for the NAFTA tariff
treatment, then this will be considered circumvention.
17. TRANSSHIPMENT verification sub-program)and document any concerns

with respect to the finished good being altered subsequent to importation.
e) Prepare a written evaluation of the possible non-qualifying
production/assembly operation and assess the evidence gathered.
f) When completing the remaining verification procedures for the goods subject to
averaging, are there any practice(s) that could be construed as a pricing practice
that has been implemented by the company for the purpose of circumventing the
rule of origin requirements so that the exported goods can qualify as originating.
g) Identify major adjustments made as a result of the 11. VALUE OF
MATERIALS verification sub-program, and document any concerns.
h) Review adjustments made to the purchases accounts. Identify any concerns.
i) Prepare a written evaluation of the non-qualifying pricing practice(s) and
assess the extent of the evidence
gathered.
16.3 Conclusion on Non-Qualifying Operations
j) Conclude on the Non-qualifying Operations Sub-objective.
17. TRANSSHIPMENT

a) During the on-site visit, interview personnel in order to understand the
production/assembly operations of the entire plant(s) where the good is
produced. Document any concerns with respect to possible non-qualifying
b) Review the previously obtained bill of materials and any product literature for
the good. Document any concerns with respect to non-qualifying
c) Review verification sub-program 5 of this verification program entitled the
PLANT TOUR. Identify any concerns noted during the tour with respect to nonqualifying production/assembly operations.
the

inspection, removal of dust that accumulates during shipment, ventilation,
units or of the goods that are spoiled or damaged and present a danger to the
1.
2
2.
3
3.
CICA Handbook Section 5100.02

a) Obtain and review copies of the invoices, bills of lading or waybills for the
goods subject to verification for a sample period. Document the shipping route
and all points of shipment and transshipment prior to the importation of the good.
Determine if the good was conveyed directly on a through bill of lading from the
exporter to a consignee. Consider gathering information from the importer.
b) If the good was not been shipped directly on a through bill of lading, they may
be transshipped through an
intermediate country, provided that:
i) the good remains under Customs transit control in the intermediate country;
and
ii) the good undergoes no operations in the intermediary country other than the
unloading, reloading, or operations necessary to preserve the goods in good
condition such as inspection, removal of dust that accumulates during shipment,
ventilation, spreading out or drying, chilling, replacing salt, sulfur or other
aqueous solutions, replacing damaged packing materials and containers and
removal of units of the good that are spoiled, or damaged and present a danger
to the remaining units of the good or any other operation necessary to transport
the good to a NAFTA country. In order to substantiate the above, request
documentation from the exporter and/or importer. Documents include, but shall
not be limited to: 1) customs receipts and release documents; 2) exporter/
producer shipment/production records; 3) list of serial numbers or lot numbers of
the goods; 4) temporary import and corresponding export documentation; 5)
research material explaining the non-NAFTA customs operations and
procedures.
c) Determine whether the good shipped was not produced by the producer.
Consider the potential for fungible goods. If fungible goods are found, refer to the
10. INVENTORY MANAGEMENT SYSTEM verification sub-program.
4.
5
5.


NAFTA Verification and Audit Manual

Загружено:

Сведения о документе

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

NAFTA Verification and Audit Manual

Загружено:

Авторское право:

Доступные форматы

U.S.

Customs and Border Protection - Import

Tuesday, September 25, 2007

NAFTA Verification/Audit Manual

- Chapter 1: Purpose of the Manual and Legislative

Search NAFTA Verification/Audit

section sitemap for

- Chapter 5: Scope of the NAFTA Audits (Verifications)

Textiles and Quotas

- Introduction and Executive Summary

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

Certificate of Origin CF-434

General Questionnaire CF-446

Light Duty Automotive Goods - Averaged

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

Part 191- Drawback

Part 10- Articles Conditionally Free, Subject to a Reduced Rate, etc.

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

2.2 Confidentiality of Business Information

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

3.2 Audit Working Papers

3.1 Details of Auditing Standards

i) The planning and preparation phase of an exporter/producer verification conducted by the

(b) in the scope paragraph of his or her report state that:

- the name of the company and the file number;

a) Each working paper requires the following:

3.2.6 Verification Scope and Coverage

The reporting phase of the exporter/producer verification conducted by the Customs

c) Officers conducting special projects, such an industry surveys, etc.

- the name of the company and the file number;

a) Each working paper requires the following information:

a) A completed and signed Planning-Memorandum analysis and importer notification procedures

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

OBJECTIVES OF NAFTA AUDITS (VERIFICATIONS)

OBJECTIVES OF THE VERIFICATION PROGRAMS

F. TARIFF TREATMENT PROGRAM

NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

1) Eligibility for the transaction value method

3) Review of management of information system

VERIFICATION PROGRAM A NON-QUALIFYING OPERATIONS

VERIFICATION PROGRAM B TARIFF CLASSIFICATION

VERIFICATION PROGRAM C REGIONAL VALUE CONTENT - TRANSACTION VALUE

f) The good is designated as an intermediate material and is subject to a RVC requirement.

B) programming conventions and procedures;

A) systems development methodology;

F) unreliable, improper, and unauthorized processing is corrected;

E) unreliable, improper, and unauthorized processing is detected;

i) determine which materials the exporter has designated as originating;

6) a judgmental sample of the remaining suppliers;

5) a selection for value of materials and

- Inquire of company officials.

e) Conclude as to whether the Intermediate Material is an originating material.

11. ACCESSORIES, SPARE PARTS AND TOOLS

13. INVENTORY MANAGEMENT SYSTEM.

l) Is the inventory management system tested periodically? Obtain a description of periodic

VALUE OF THE GOOD verification sub-program.

VERIFICATION PROGRAM D REGIONAL VALUE CONTENT - NET COST METHOD

TO VERIFY THAT THE REGIONAL VALUE CONTENT REQUIREMENT, AS REQUIRED BY

b) Observe and document the existence of the good under review.

B) list of materials and suppliers - approved vendor listing

4. ORIGINATING AND NON-ORIGINATING MATERIALS

E) unreliable, improper, and unauthorized processing is detected;

5) commissions, except buying commissions, incurred by the producer;

5. VALUE OF MATERIALS CONTINUED;