103 STAT. 2678 PROCLAMATION 5923—DEC. 14, 1988 (0) As used in subdivisions (c)(vii)(H), (N) and (R) of this note, the phrase "direct coat of processing or direct cost of assembling' means the costs directly incurred in, or that can reasonably be allocated to, the production of goods, including— (1) the cost of all labor, including benefits and on-the-job training, labor provided in connec- tion with supervision, quality control, shipping, receiving, storage, packaging, management at the location of the process or assembly, and other like labor, whether provided by em- ployees or independent contractors, (2) the cost of inspecting and testing the goods, (3) the cost of energy, fuel, dies, molds, tooling, and the depreciation and maintenance of machinery and equipment, without regard to whether they originate within the territory of Canada and/or the United States, (4) development, design, and engineering costs, (5) rent, mortgage interest, depreciation on buildings, property insurance premiums, mainte- nance, taxes and the cost of utilities for real property used in the production of the goods, and (6) royalty, licensing, or other like payments for the right to the goods, but not including— (I) costs relating to the general expense of doing business, such as the cost of providing executive, financial, sales, advertising, marketing, accounting and legal services and insur- ance, (n) brokerage charges relating to the importation and exportation of goods, (m) costs for telephone, mail and other means of communication, (IV) packing costs for exporting the goods, (V) royalty payments related to a licensing agreement to distribute or sell the goods, (VI) rent, mortgage interest, depreciation on buildings, property insurance premiums, main- tenance, taxes and the cost of utilities for real property used by personnel charged with ^ administrative functions, or (VII) profit on the goods. (P) For the purposes of subdivision (c)(vii) of this note, the term "materials" means goods, other than those included as part of the direct cost of processing or assembling, used or consumed in the production of other goods. (Q) For the purposes of subdivision (c)(vii) of this note, the term "territory means— (1) with respect to Canada, the territory to which its customs laws apply, including any areas beyond the territorial seas of Canada within which, in accordance with international law and its domestic laws, Canada may exercise rights with respect to the seabed and sub- soil and their natural resources, and (2) with respect to the United States, (I) the customs territory of the United States, (0) the foreign trade zones located in the United States and the Commonwealth of Puerto Rico, and (III) any area beyond the territorial seas of the United States within which, in accordance with international law and its domestic laws, the United States may exercise rights with respect to the seabed and subsoil and their natural resources. {^) Change in Tariff Classification Rules. (1) Section I: Chapters 1 through S. A change from one chapter to another; no changes within chapters. (2) Section II: Chapters 6 through 14. (aa) A change from one chapter to another; no changes within chapters except that agricul- tural and horticultural goods grown in the territory of Canada shall be treated as originating in the territory of Canada even if grown from seed or bulbs imported bam a third country. (bb) A change to subheadings 0901.12 through 0901.40 horn any other subheadings, including another subheading within tiiat group. (3) Section III: Chapter 15. (aa) A change to chapter 15 from any other chapter. (bb) A change to any of the following subheadings &t)m any other subheading: 1507.90, 1508.90, 1511.90, 1512.19, 1512.29, 1513.19, 1513.29, 1514.90, 1515.19, 1515.29. (cc) A change to heading 1516 fitim any other heading. ^ , < (dd) A change to heading 1517fix>many other heading. ^
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