“(a) Application and Interpretation.—In this section:“(1) Tariff classification.—The basis for any tariff classification is the HTS.
“(2) Reference to hts.—Whenever in this section there is a reference to a heading or subheading, such reference shall be a reference to a heading or subheading of the HTS.
“(3) Cost or value.—Any cost or value referred to in this section shall be recorded and maintained in accordance with the generally accepted accounting principles applicable in the territory of the country in which the good is produced (whether Australia or the United States).
“(b) Originating Goods.—For purposes of this Act and for purposes of implementing the preferential treatment provided for under the Agreement, a good is an originating good if—“(1) the good is a good wholly obtained or produced entirely in the territory of Australia, the United States, or both;
“(2) the good—“(A) is produced entirely in the territory of Australia, the United States, or both, and—“(i) each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in Annex 4–A or Annex 5–A of the Agreement;
“(ii) the good otherwise satisfies any applicable regional value-content requirement referred to in Annex 5–A of the Agreement; or
“(iii) the good meets any other requirements specified in Annex 4–A or Annex 5–A of the Agreement; and
“(B) the good satisfies all other applicable requirements of this section;
“(3) the good is produced entirely in the territory of Australia, the United States, or both, exclusively from materials described in paragraph (1) or (2); or
“(4) the good otherwise qualifies as an originating good under this section.
“(c) De Minimis Amounts of Nonoriginating Materials.—“(1) In general.—Except as provided in paragraphs (2) and (3), a good that does not undergo a change in tariff classification pursuant to Annex 5–A of the Agreement is an originating good if—“(A) the value of all nonoriginating materials that—“(i) are used in the production of the good, and
“(ii) do not undergo the required change in tariff classification,
does not exceed 10 percent of the adjusted value of the good;
“(B) the good meets all other applicable requirements of this section; and
“(C) the value of such nonoriginating materials is included in the value of nonoriginating materials for any applicable regional value-content requirement for the good.
“(2) Exceptions.—Paragraph (1) does not apply to the following:“(A) A nonoriginating material provided for in chapter 4 of the HTS or in subheading 1901.90 that is used in the production of a good provided for in chapter 4 of the HTS.
“(B) A nonoriginating material provided for in chapter 4 of the HTS or in subheading 1901.90 that is used in the production of a good provided for in subheading 1901.10, 1901.20, or 1901.90, heading 2105, or subheading 2106.90, 2202.90, or 2309.90.
“(C) A nonoriginating material provided for in heading 0805 or any of subheadings 2009.11 through 2009.39 that is used in the production of a good provided for in any of subheadings 2009.11 through 2009.39, or in subheading 2106.90 or 2202.90.
“(D) A nonoriginating material provided for in chapter 15 of the HTS that is used in the production of a good provided for in any of headings 1501.00.00 through 1508, or in heading 1512, 1514, or 1515.
“(E) A nonoriginating material provided for in heading 1701 that is used in the production of a good provided for in any of headings 1701 through 1703.
“(F) A nonoriginating material provided for in chapter 17 of the HTS or heading 1805.00.00 that is used in the production of a good provided for in subheading 1806.10.
“(G) A nonoriginating material provided for in any of headings 2203 through 2208 that is used in the production of a good provided for in heading 2207 or 2208.
“(H) A nonoriginating material used in the production of a good provided for in any of chapters 1 through 21 of the HTS unless the nonoriginating material is provided for in a different subheading than the good for which origin is being determined under this section.
“(3) Textile and apparel goods.—“(A) In general.—Except as provided in subparagraph (B), a textile or apparel good that is not an originating good because certain fibers or yarns used in the production of the component of the good that determines the tariff classification of the good do not undergo an applicable change in tariff classification set out in Annex 4–A of the Agreement shall be considered to be an originating good if the total weight of all such fibers or yarns in that component is not more than 7 percent of the total weight of that component.
“(B) Certain textile or apparel goods.—A textile or apparel good containing elastomeric yarns in the component of the good that determines the tariff classification of the good shall be considered to be an originating good only if such yarns are wholly formed in the territory of Australia or the United States.
“(C) Yarn, fabric, or fiber.—For purposes of this paragraph, in the case of a textile or apparel good that is a yarn, fabric, or group of fibers, the term ‘component of the good that determines the tariff classification of the good’ means all of the fibers in the yarn, fabric, or group of fibers.
“(d) Accumulation.—“(1) Originating materials used in production of goods of other country.—Originating materials from the territory of Australia or the United States that are used in the production of a good in the territory of the other country shall be considered to originate in the territory of the other country.
“(2) Multiple procedures.—A good that is produced in the territory of Australia, the United States, or both, by 1 or more producers, is an originating good if the good satisfies the requirements of subsection (b) and all other applicable requirements of this section.
“(e) Regional Value-Content.—“(1) In general.—For purposes of subsection (b)(2), the regional value-content of a good referred to in Annex 5–A of the Agreement, except for goods to which paragraph (4) applies, shall be calculated by the importer, exporter, or producer of the good, on the basis of the build-down method described in paragraph (2) or the build-up method described in paragraph (3).
“(2) Build-down method.—“(A) In general.—The regional value-content of a good may be calculated on the basis of the following build-down method:
rvc =av–vnm×100
av
“(B) Definitions.—In subparagraph (A):“(i) RVC.—The term ‘RVC’ means the regional value-content of the good, expressed as a percentage.
“(ii) AV.—The term ‘AV’ means the adjusted value of the good.
“(iii) VNM.—The term ‘VNM’ means the value of nonoriginating materials that are acquired and used by the producer in the production of the good, but does not include the value of a material that is self-produced.
“(3) Build-up method.—“(A) In general.—The regional value-content of a good may be calculated on the basis of the following build-up method:
rvc=vom×100
av
“(B) Definitions.—In subparagraph (A):“(i) RVC.—The term ‘RVC’ means the regional value-content of the good, expressed as a percentage.
“(ii) AV.—The term ‘AV’ means the adjusted value of the good.
“(iii) VOM.—The term ‘VOM’ means the value of originating materials that are acquired or self-produced, and used by the producer in the production of the good.
“(4) Special rule for certain automotive goods.—“(A) In general.—For purposes of subsection (b)(2), the regional value-content of an automotive good referred to in Annex 5–A of the Agreement shall be calculated by the importer, exporter, or producer of the good, on the basis of the following net cost method:
rvc=nc–vnm×100
nc
“(B) Definitions.—In subparagraph (A):“(i) Automotive good.—The term ‘automotive good’ means a good provided for in any of subheadings 8407.31 through 8407.34, subheading 8408.20, heading 8409, or in any of headings 8701 through 8708.
“(ii) RVC.—The term ‘RVC’ means the regional value-content of the automotive good, expressed as a percentage.
“(iii) NC.—The term ‘NC’ means the net cost of the automotive good.
“(iv) VNM.—The term ‘VNM’ means the value of nonoriginating materials that are acquired and used by the producer in the production of the automotive good, but does not include the value of a material that is self-produced.
“(C) Motor vehicles.—“(i) Basis of calculation.—For purposes of determining the regional value-content under subparagraph (A) for an automotive good that is a motor vehicle provided for in any of headings 8701 through 8705, an importer, exporter, or producer may average the amounts calculated under the formula contained in subparagraph (A), over the producer’s fiscal year— “(I) with respect to all motor vehicles in any one of the categories described in clause (ii); or
“(II) with respect to all motor vehicles in any such category that are exported to the territory of the United States or Australia.
“(ii) Categories.—A category is described in this clause if it— “(I) is the same model line of motor vehicles, is in the same class of vehicles, and is produced in the same plant in the territory of Australia or the United States, as the good described in clause (i) for which regional value-content is being calculated;
“(II) is the same class of motor vehicles, and is produced in the same plant in the territory of Australia or the United States, as the good described in clause (i) for which regional value-content is being calculated; or
“(III) is the same model line of motor vehicles produced in either the territory of Australia or the United States, as the good described in clause (i) for which regional value-content is being calculated.
“(D) Other automotive goods.—For purposes of determining the regional value-content under subparagraph (A) for automotive goods provided for in any of subheadings 8407.31 through 8407.34, in subheading 8408.20, or in heading 8409, 8706, 8707, or 8708, that are produced in the same plant, an importer, exporter, or producer may—“(i) average the amounts calculated under the formula contained in subparagraph (A) over— “(I) the fiscal year of the motor vehicle producer to whom the automotive goods are sold,
“(II) any quarter or month, or
“(III) its own fiscal year,
if the goods were produced during the fiscal year, quarter, or month that is the basis for the calculation;
“(ii) determine the average referred to in clause (i) separately for such goods sold to one or more motor vehicle producers; or
“(iii) make a separate determination under clause (i) or (ii) for automotive goods that are exported to the territory of the United States or Australia.
“(E) Calculating net cost.—Consistent with the provisions regarding allocation of costs set out in generally accepted accounting principles, the net cost of the automotive good under subparagraph (B) shall be calculated by—“(i) calculating the total cost incurred with respect to all goods produced by the producer of the automotive good, subtracting any sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, and nonallowable interest costs that are included in the total cost of all such goods, and then reasonably allocating the resulting net cost of those goods to the automotive good;
“(ii) calculating the total cost incurred with respect to all goods produced by that producer, reasonably allocating the total cost to the automotive good, and then subtracting any sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, and nonallowable interest costs that are included in the portion of the total cost allocated to the automotive good; or
“(iii) reasonably allocating each cost that forms part of the total cost incurred with respect to the automotive good so that the aggregate of these costs does not include any sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, or nonallowable interest costs.
“(f) Value of Materials.—“(1) In general.—For the purpose of calculating the regional value-content of a good under subsection (e), and for purposes of applying the de minimis rules under subsection (c), the value of a material is—“(A) in the case of a material that is imported by the producer of the good, the adjusted value of the material;
“(B) in the case of a material acquired in the territory in which the good is produced, the value, determined in accordance with Articles 1 through 8, article 15, and the corresponding interpretive notes of the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 referred to in section 101(d)(8) of the Uruguay Round Agreements Act [19 U.S.C. 3511(d)(8)], as set forth in regulations promulgated by the Secretary of the Treasury providing for the application of such Articles in the absence of an importation; or
“(C) in the case of a material that is self-produced, the sum of—“(i) all expenses incurred in the production of the material, including general expenses; and
“(ii) an amount for profit equivalent to the profit added in the normal course of trade.
“(2) Further adjustments to the value of materials.—“(A) Originating material.—The following expenses, if not included in the value of an originating material calculated under paragraph (1), may be added to the value of the originating material:“(i) The costs of freight, insurance, packing, and all other costs incurred in transporting the material within or between the territory of Australia, the United States, or both, to the location of the producer.
“(ii) Duties, taxes, and customs brokerage fees on the material paid in the territory of Australia, the United States, or both, other than duties or taxes that are waived, refunded, refundable, or otherwise recoverable, including credit against duty or tax paid or payable.
“(iii) The cost of waste and spoilage resulting from the use of the material in the production of the good, less the value of renewable scrap or byproducts.
“(B) Nonoriginating material.—The following expenses, if included in the value of a nonoriginating material calculated under paragraph (1), may be deducted from the value of the nonoriginating material:“(i) The costs of freight, insurance, packing, and all other costs incurred in transporting the material within or between the territory of Australia, the United States, or both, to the location of the producer.
“(ii) Duties, taxes, and customs brokerage fees on the material paid in the territory of Australia, the United States, or both, other than duties or taxes that are waived, refunded, refundable, or otherwise recoverable, including credit against duty or tax paid or payable.
“(iii) The cost of waste and spoilage resulting from the use of the material in the production of the good, less the value of renewable scrap or byproducts.
“(iv) The cost of processing incurred in the territory of Australia, the United States, or both, in the production of the nonoriginating material.
“(v) The cost of originating materials used in the production of the nonoriginating material in the territory of Australia, the United States, or both.
“(g) Accessories, Spare Parts, or Tools.—“(1) In general.—Subject to paragraph (2), accessories, spare parts, or tools delivered with a good that form part of the good’s standard accessories, spare parts, or tools shall—“(A) be treated as originating goods if the good is an originating good; and
“(B) be disregarded in determining whether all the nonoriginating materials used in the production of the good undergo the applicable change in tariff classification set out in Annex 5–A of the Agreement.
“(2) Conditions.—Paragraph (1) shall apply only if—“(A) the accessories, spare parts, or tools are not invoiced separately from the good;
“(B) the quantities and value of the accessories, spare parts, or tools are customary for the good; and
“(C) if the good is subject to a regional value-content requirement, the value of the accessories, spare parts, or tools is taken into account as originating or nonoriginating materials, as the case may be, in calculating the regional value-content of the good.
“(h) Fungible Goods and Materials.—“(1) In general.—“(A) Claim for preferential treatment.—A person claiming that a fungible good or fungible material is an originating good may base the claim either on the physical segregation of the fungible good or fungible material or by using an inventory management method with respect to the fungible good or fungible material.
“(B) Inventory management method.—In this subsection, the term ‘inventory management method’ means—“(i) averaging;
“(ii) ‘last-in, first-out’;
“(iii) ‘first-in, first-out’; or
“(iv) any other method— “(I) recognized in the generally accepted accounting principles of the country in which the production is performed (whether Australia or the United States); or
“(II) otherwise accepted by that country.
“(2) Election of inventory method.—A person selecting an inventory management method under paragraph (1) for a particular fungible good or fungible material shall continue to use that method for that fungible good or fungible material throughout the fiscal year of that person.
“(i) Packaging Materials and Containers for Retail Sale.—Packaging materials and containers in which a good is packaged for retail sale, if classified with the good, shall be disregarded in determining whether all the nonoriginating materials used in the production of the good undergo the applicable change in tariff classification set out in Annex 4–A or Annex 5–A of the Agreement, and, if the good is subject to a regional value-content requirement, the value of such packaging materials and containers shall be taken into account as originating or nonoriginating materials, as the case may be, in calculating the regional value-content of the good.
“(j) Packing Materials and Containers for Shipment.—Packing materials and containers for shipment shall be disregarded in determining whether—“(1) the nonoriginating materials used in the production of a good undergo the applicable change in tariff classification set out in Annex 4–A or Annex 5–A of the Agreement; and
“(2) the good satisfies a regional value-content requirement.
“(k) Indirect Materials.—An indirect material shall be treated as an originating material without regard to where it is produced, and its value shall be the cost registered in the accounting records of the producer of the good.
“(l) Third Country Operations.—A good that has undergone production necessary to qualify as an originating good under subsection (b) shall not be considered to be an originating good if, subsequent to that production, the good undergoes further production or any other operation outside the territory of Australia or the United States, other than unloading, reloading, or any other operation necessary to preserve the good in good condition or to transport the good to the territory of Australia or the United States.
“(m) Textile and Apparel Goods Classifiable as Goods Put Up in Sets.—Notwithstanding the rules set forth in Annex 4–A of the Agreement, textile or apparel goods classifiable as goods put up in sets for retail sale as provided for in General Rule of Interpretation 3 of the HTS shall not be considered to be originating goods unless each of the goods in the set is an originating good or the total value of the nonoriginating goods in the set does not exceed 10 percent of the value of the set determined for purposes of assessing customs duties.
“(n) Definitions.—In this section:“(1) Adjusted value.—The term ‘adjusted value’ means the value determined under Articles 1 through 8, Article 15, and the corresponding interpretive notes of the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 referred to in section 101(d)(8) of the Uruguay Round Agreements Act [19 U.S.C. 3511(d)(8)], adjusted to exclude any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the good from the country of exportation to the place of importation.
“(2) Class of motor vehicles.—The term ‘class of motor vehicles’ means any one of the following categories of motor vehicles:“(A) Motor vehicles provided for in subheading 8701.20, 8704.10, 8704.22, 8704.23, 8704.32, or 8704.90, or heading 8705 or 8706, or motor vehicles for the transport of 16 or more persons provided for in subheading 8702.10 or 8702.90.
“(B) Motor vehicles provided for in subheading 8701.10 or any of subheadings 8701.30 through 8701.90.
“(C) Motor vehicles for the transport of 15 or fewer persons provided for in subheading 8702.10 or 8702.90, or motor vehicles provided for in subheading 8704.21 or 8704.31.
“(D) Motor vehicles provided for in any of subheadings 8703.21 through 8703.90.
“(3) Fungible good or fungible material.—The term ‘fungible good’ or ‘fungible material’ means a good or material, as the case may be, that is interchangeable with another good or material for commercial purposes and the properties of which are essentially identical to such other good or material.
“(4) Generally accepted accounting principles.—The term ‘generally accepted accounting principles’ means the recognized consensus or substantial authoritative support in the territory of Australia or the United States, as the case may be, with respect to the recording of revenues, expenses, costs, assets, and liabilities, the disclosure of information, and the preparation of financial statements. These standards may encompass broad guidelines of general application as well as detailed standards, practices, and procedures.
“(5) Good wholly obtained or produced entirely in the territory of Australia, the United States, or both.—The term ‘good wholly obtained or produced entirely in the territory of Australia, the United States, or both’ means—“(A) a mineral good extracted in the territory of Australia, the United States, or both;
“(B) a vegetable good, as such goods are provided for in the HTS, harvested in the territory of Australia, the United States, or both;
“(C) a live animal born and raised in the territory of Australia, the United States, or both;
“(D) a good obtained from hunting, trapping, fishing, or aquaculture conducted in the territory of Australia, the United States, or both;
“(E) a good (fish, shellfish, and other marine life) taken from the sea by vessels registered or recorded with Australia or the United States and flying the flag of that country;
“(F) a good produced exclusively from products referred to in subparagraph (E) on board factory ships registered or recorded with Australia or the United States and flying the flag of that country;
“(G) a good taken by Australia or the United States or a person of Australia or the United States from the seabed or beneath the seabed outside territorial waters, if Australia or the United States has rights to exploit such seabed;
“(H) a good taken from outer space, if such good is obtained by Australia or the United States or a person of Australia or the United States and not processed in the territory of a country other than Australia or the United States;
“(I) waste and scrap derived from—“(i) production in the territory of Australia, the United States, or both; or
“(ii) used goods collected in the territory of Australia, the United States, or both, if such goods are fit only for the recovery of raw materials;
“(J) a recovered good derived in the territory of Australia or the United States from goods that have passed their life expectancy, or are no longer usable due to defects, and utilized in the territory of that country in the production of remanufactured goods; or
“(K) a good produced in the territory of Australia, the United States, or both, exclusively—“(i) from goods referred to in any of subparagraphs (A) through (I), or
“(ii) from the derivatives of goods referred to in clause (i),
at any stage of production.
“(6) Indirect material.—The term ‘indirect material’ means a good used in the production, testing, or inspection of a good but not physically incorporated into the good, or a good used in the maintenance of buildings or the operation of equipment associated with the production of a good, including—“(A) fuel and energy;
“(B) tools, dies, and molds;
“(C) spare parts and materials used in the maintenance of equipment or buildings;
“(D) lubricants, greases, compounding materials, and other materials used in production or used to operate equipment or buildings;
“(E) gloves, glasses, footwear, clothing, safety equipment, and supplies;
“(F) equipment, devices, and supplies used for testing or inspecting the good;
“(G) catalysts and solvents; and
“(H) any other goods that are not incorporated into the good but the use of which in the production of the good can reasonably be demonstrated to be a part of that production.
“(7) Material.—The term ‘material’ means a good that is used in the production of another good.
“(8) Material that is self-produced.—The term ‘material that is self-produced’ means an originating material that is produced by a producer of a good and used in the production of that good.
“(9) Model line.—The term ‘model line’ means a group of motor vehicles having the same platform or model name.
“(10) Nonallowable interest costs.—The term ‘nonallowable interest costs’ means interest costs incurred by a producer that exceed 700 basis points above the applicable official interest rate for comparable maturities of the country (whether Australia or the United States).
“(11) Nonoriginating material.—The term ‘nonoriginating material’ means a material that does not qualify as originating under this section.
“(12) Preferential treatment.—The term ‘preferential treatment’ means the customs duty rate, and the treatment under article 2.12 of the Agreement, that are applicable to an originating good pursuant to the Agreement.
“(13) Producer.—The term ‘producer’ means a person who engages in the production of a good in the territory of Australia or the United States.
“(14) Production.—The term ‘production’ means growing, raising, mining, harvesting, fishing, trapping, hunting, manufacturing, processing, assembling, or disassembling a good.
“(15) Reasonably allocate.—The term ‘reasonably allocate’ means to apportion in a manner that would be appropriate under generally accepted accounting principles.
“(16) Recovered goods.—The term ‘recovered goods’ means materials in the form of individual parts that result from—“(A) the complete disassembly of goods which have passed their life expectancy, or are no longer usable due to defects, into individual parts; and
“(B) the cleaning, inspecting, or testing, or other processing that is necessary for improvement to sound working condition of such individual parts.
“(17) Remanufactured good.—The term ‘remanufactured good’ means an industrial good that is assembled in the territory of Australia or the United States, that is classified under chapter 84, 85, or 87 of the HTS or heading 9026, 9031, or 9032, other than a good classified under heading 8418 or 8516 or any of headings 8701 through 8706, and that—“(A) is entirely or partially comprised of recovered goods;
“(B) has a similar life expectancy to, and meets the same performance standards as, a like good that is new; and
“(C) enjoys a factory warranty similar to a like good that is new.
“(18) Total cost.—The term ‘total cost’ means all product costs, period costs, and other costs for a good incurred in the territory of Australia, the United States, or both.
“(19) Used.—The term ‘used’ means used or consumed in the production of goods.
“(o) Presidential Proclamation Authority.—“(1) In general.—The President is authorized to proclaim, as part of the HTS—“(A) the provisions set out in Annex 4–A and Annex 5–A of the Agreement; and
“(B) any additional subordinate category necessary to carry out this title consistent with the Agreement.
“(2) Modifications.—“(A) In general.—Subject to the consultation and layover provisions of section 104, the President may proclaim modifications to the provisions proclaimed under the authority of paragraph (1)(A), other than provisions of chapters 50 through 63 of the HTS, as included in Annex 4–A of the Agreement.
“(B) Additional proclamations.—Notwithstanding subparagraph (A), and subject to the consultation and layover provisions of section 104, the President may proclaim—“(i) modifications to the provisions proclaimed under the authority of paragraph (1)(A) as are necessary to implement an agreement with Australia pursuant to article 4.2.5 of the Agreement; and
“(ii) before the end of the 1-year period beginning on the date of the enactment of this Act [Aug. 3, 2004], modifications to correct any typographical, clerical, or other nonsubstantive technical error regarding the provisions of chapters 50 through 63 of the HTS, as included in Annex 4–A of the Agreement.