Calculation of Extended Cost, Value Add, Value of Originating Material, and Value of Non-originating Material

Once your trade agreement is configured and the formulas are in place, GTM uses information on the trade agreement, the formulas, and values you’ve specified to determine if your finished good qualifies for a trade agreement. There are a few key values that are calculated including Extended Cost and Value Add. There following steps occur in GTM:

1. Calculate the Extended Cost of the finished good and the components in a multi-level BOM.
2. Determine the Value Add of the finished good and the components.
3. Evaluate if the components are part of the trade agreement region or are considered originating.
4. Consider the value add while calculating the value of originating material (VOM) and value of non-originating material (VNM).
5. Evaluate the RVC percentages based on calculated values of VOM and VNM.

Let’s look at each of these steps in greater detail.

1. Calculate the Extended Cost of the finished good and the components in a multi-level BOM.
   
   The reference numbers specified on the trade agreement (discuss in the Trade Agreement Configuration section) tell GTM the formulas that are used to calculate extended cost. You need to have 2 reference number qualifiers and values specified: 
   RVC METHOD1-EXTENDED VALUE FORMULA
   RVC METHOD1-COMPONENT EXTENDED VALUE FORMULA 
   
   Extended Cost is stored against the Value Qualifier = EXTENDED AMOUNT on the item qualification record and is also displayed on the Qualification Report. 
2. Determine the Value Add of the finished good and the components.
3. Value add is determined using the extended cost. For the component leaf level, or the lowest level of the item structure: 
   Value Add = Extended Cost 
   
   For the finished good or the intermediate sub-assemblies: 
   Value Add = Extended Cost – (Value add of the immediate level components) 
   
   Value Add is stored against the Value Qualifier = VALUE ADD on the item qualification record and is also displayed on the Qualification Report.
4. Evaluate if the components are part of the trade agreement region or are considered.
   
   GTM determines if the components and intermediate sub-assemblies belong to the trade agreement region. If the component leaf level are non-originating, the Value Add is added to the values of non-originating material. Leaf components must also have a Qualified status = QUALIFIED to be originating. 
   
   If the intermediate sub-assembly belongs to the trade agreement region, it does not need to be qualified. GTM will qualify it when it runs qualification against the finished good. Any value adds are taken as values of the originating material. 
   
   If the finished good does not qualify at the leaf component level, GTM then uses the rollup principle which enables you to take advantage of the full value of an intermediate sub-assembly if that sub-assembly is originating and qualifies for a trade agreement.
5. Consider the value add while calculating the value of originating material (VOM) and value of non-originating material (VNM).
   
   To calculate the VOM of the finished good, GTM considers the originating status and the Value Add of all the components in the trade item structure if the components, including the intermediate sub-assembly level, belong to the trade agreement region. The value is saved on the item qualification using the Value Qualifier = VALUE OF ORIGINATING MATERIAL. 
   
   To calculate the VNM of the finished good, GTM considers the Value Add of only the leaf components in the trade item structure if the components do not belong to the trade agreement region. The value is saved on the item qualification using the Value Qualifier = VALUE OF NON-ORIGINATING MATERIAL.
   
   Specifically:
   -    VOM of component item = Originating value of the item
   -    VOM for the finished good = Originating value of the item + Sum of extended cost of its originating component
   -    VNM of component item = Non-originating value of the item
   -    VNM of finished good = Sum of extended cost of it’s non-originating components
6. Evaluate the RVC percentages based on calculated values of VOM and VNM.
   
   For the RVC percentage calculation, values such as NET COST, TRANSACTION VALUE, and ADJUSTED VALUE should be calculated upfront and available on the item. Or, these values can be calculated based on formulas specified in on the Trade Agreement in the Rules of Origin Formulae grid or in the Rules of Origin Rule Types.