Tuesday, June 8, 2010

Free Trade Tuesday: NAFTA RVC

In order to determine NAFTA eligibility, a regional value content (RVC) calculation may be required. The RVC is a calculated percentage of the value of the product that represents its North American content. RVC must be calculated using either transaction value or net cost.

For example, plastic boxes classified under 3923.10 made from imported resins of 3901.20, must meet RVC even though it satisfies the tariff shift requirements. . The main areas of the tariff schedule that require a Regional Value Content calculation are automobiles, chemicals, footwear and machinery.

Under the transaction value method, the calculation is made on the value of non-originating materials as a percentage of the transaction value of the goods, which is the total price paid for the good, with certain adjustments for packing and other items. See
19 CFR 152 for additional information on transaction value. The value of the non-originating materials is calculated as a percentage of the invoice price actually paid for the goods. Because the transaction value method permits the producer to count all of its costs and profit, the required percentage of RVC under this method is higher than under the net cost method. Transaction value cannot be used when there is no sale, in some related party transactions and for certain motor vehicles and parts.

Transaction Value Formula: RVC = [(TV-VNM)/TV] X100

TV Example:
An electric curling iron (8516.32) is made in Mexico from Japanese hair curler parts (8516.90). Each curling iron is sold for $4.40; the value of the non-originating curler parts is $1.80. [(4.40-1.80)/4.40] X 100 = 59% The hair curler will not be considered an originating good under this method, since the required RVC is 60%.

RVC using net cost is calculated as a percentage of the net cost to produce the merchandise. Net cost represents all of the costs incurred by the producer, minus expenses for sales promotions, royalties, shipping, packing costs, and non-allowable interest costs. The percentage content required under the net cost method is lower than under transaction value because of the exclusion of certain costs from the net cost calculation.

Net Cost Formula: RVC = [(NC-VNM)/NC] X100

NC Example:
The producer of the curling iron in the TV example states that the cost is $3.90, which includes $0.25 for shipping and packing. There are no costs for royalties, sales promotion or non-allowable interest. The net cost is $3.65. [(3.65-1.80)/3.65] X100 = 50.1% The hair curler would be considered originating, since the required RVC is 50% when the net cost method is used.

Answer to NAFTA Tariff Shift Question 6/1/2010

First, we should look up the HTSUS number provided to make sure it is eligible for duty-free treatment from Singapore. We find the symbol "SG" in the Special subcolumn which indicates that the HTSUS is indeed eligible for duty-free treatment if the non-originating items satisfy the tariff shift. Turning over to General Note 25, we find the tariff shift must be from any other chapter to Chapter 96. All of the non-originating products on our list EXCEPT the toothbrush meets this requirement; therefore, the kit it not eligible for special treatment under the Singapore FTA.

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