REGIONAL VALUE CONTENT

Example: Determining NAFTA eligibility

Arc lamp: HS # 8539.41
Product: MX#6000, ZB-100 Lamp

Bill of Materials

Components Price/unit HS# NAFTA Certificate (Yes or No)

1) plastic lamp body $3.10 8539.90 No (imported from Asia)
2) electric chord $4.26 Yes
3) paint $0.20 Chap 32 No
4) light bulb $1.30 8539.31 Yes
5) bolts/screws $0.50 7616.10 No
6) metal stem of lamp $8.86 8539.90 No (imported from Asia)

Total cost of materials: $18.22

Sales Price $40

Rule of Origin – From General Note 12

123. (A) A change to subheadings 8539.10 through 8539.49 from any other heading; or

(B) A change to subheadings 8539.10 through 8539.49 from subheading 8539.90,

whether or not there is a change from any other heading, provided there is a
regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.

Interpretation of General Note 12

If the components that go into the lamp come from outside the heading 8539, the lamp
qualifies for NAFTA. But we are 99% sure that some of the components can only be
classified as parts of ultraviolet lamps. Since parts of ultraviolet lamps are classified as
8539.90 the lamp would not qualify because the heading of the parts is the same as the
heading of the lamp, 8539. So we must try the (B) rule for regional value content.

The idea behind Regional Value Content (RVC) is to prove that a percentage of the
content is actually from within the NAFTA territory, or
-not from Asia
-not from Europe
-not just distributed from a NAFTA country
** but made in a NAFTA territory

There are 2 ways to calculate RVC

(1) Transaction Value Method (TV)
(2) Net Cost Method (NC)

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Transaction Value Method

-Under this method, the transaction value is defined as the price actually paid for the
good
-up to 40% of the transaction value of the good can be non-originating (foreign made)

TV formula: RVC = TV – VNM * 100 (VNM = value of non-originating material)

TV

To calculate the TV method, you need:

-bill of materials with associated costs, HS codes, supplier certificates

-selling price/transaction price

For the arc lamp: the selling price is $40 for the model MX#6000 ZB-100

Lets make it simple first. Rather than figure out all the non-originating material, lets see
what the calculation would be if we used the total cost of parts….

(40-18.22) * 100 = 54.45% which is under the 60% RVC requirement, and does not qualify
40

Estimated cost of non-originating parts: 18.22 - 4.26 – 1.30 = $12.66; we have

subtracted the components that we are sure originate because we have NAFTA
certificates for them…

(40-12.66) * 100 = 68.35% which is above the 60% RVC requirement and does qualify
40

Net Cost Method

(same process as TV, but just different numbers, for specific questions on NC contact NAFTA Opportunity
Center)

-Under this method, net cost is defined as the total cost of production, including
overhead and labor (but NOT profit) less sales promotion, marketing and after-sales
service costs, royalties, shipping and packing costs

-up to 50% of the net cost of the good can be non-originating (foreign made)

NC formula: RVC = NC – VNM * 100 (VNM = value of non-originating material)

NC

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Net Cost definitions:

NET COST:
Net Cost is defined as the total cost of production, including overhead and labor (but
NOT profit) less sales promotion, marketing and after-sales service costs, royalties,
shipping and packing costs.

PRODUCTION:
Production means growing, mining, harvesting, fishing, trapping, hunting,
manufacturing, processing or assembling a good.

PRODUCT COSTS:
Product costs means costs that are associated with the production of a good, and
includes the value of materials, direct labor costs and direct overhead

ROYALTIES:
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, trademark, 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 NAFTA countries, engineering,
tooling, die-setting, software design and similar computer services, or other services;

SALES PROMOTION, MARKETING & AFTER-SALES SERVICES COSTS:

Sales promotion, marketing and after-sales service costs means the following costs
related to sales promotion, marketing and after-sales service:
(a) sales and marketing promotion; media advertising; advertising and market research;
promotional and demonstration materials; exhibits; sales conferences, trade shows and
conventions; banners; marketing displays; free samples; sales, marketing and after-
sales service literature (product brochures, catalogs, technical literature, price lists,
service manuals, sales aid information); establishment and protection of logos and
trademarks; sponsorships; wholesale and retail restocking charges; entertainment;
(b) sales and marketing incentives; consumer, retailer or wholesaler rebates;
merchandise incentives;
(c) salaries and wages, sales commissions, bonuses, benefits (for example, medical,
insurance, pension), 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;

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(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 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;

SHIPPING & PACKING COSTS:

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