RR:IT:VA 547877er
Category: Valuation
Area Port Director
Milwaukee, Wisconsin 53237
RE: Request for Internal Advice 00/019; Allen Bradley Company, LLC.
Dear Port Director:
This is in response to your request for Internal Advice dated October 20, 2000, which was sent to the Chief, Metals and Machinery Branch of the National Commodity Specialist Division and was received by this office on December 12, 2000. Attached to your request is a memorandum from the Metals and Machinery Branch dated December 5, 2000, as well as the initial request for Internal Advice dated June 26, 2000, submitted by counsel to the Milwaukee Area Port Director on behalf of their client, Rockwell Automation/Allen-Bradley Company LLT (“Allen-Bradley”). We regret the delay in responding.
FACTS:
Allen-Bradley is a domestic manufacturer of sensing equipment, relays and electrical components used in industrial applications. In addition to producing equipment in the U.S., Allen Bradley has equipment produced abroad. The equipment is imported into the U.S. by Allen Bradley for purposes of resale to customers in the U.S. and elsewhere.
According to counsel, Allen Bradley annually establishes a “new list price” for each product. These prices are those at which the company would, in theory, sell a single unit of the product to a purchaser who approached it outside of normal business channels. In practice, these prices are not charged as Allen Bradley sets prices to its customers for new equipment according to several factors, the most significant of which depends on the quantities of equipment purchased by various classes of customers.
Most sales for export from the U.S. are to related party affiliates. These affiliates arrange for the distribution and sale of the products within the market country. Allen Bradley offers after-sales repair services for the products they sell to related parties, only. The Allen Bradley distributor in the region overseas accepts returns from customers and the products are consigned by the foreign affiliate/distributor to Allen Bradley for purposes of repairs. Allen Bradley does not accept returns directly from overseas customers.
Allen Bradley uses two multipliers to make deductions from the new sales price list to calculate the repair charges it charges to its affiliates. One multiplier is .428 to account for the fact that the returned product is defective. The other multiplier is .30 to reflect the fact that the product was initially sold at discount and for the fact that the product has depreciated in value since the time it was originally purchased. It is your position that Allen Bradley’s use of the new sales list price, less a defective goods allowance of .428 is reasonable; however, you dispute the use of the additional .30 multiplier for the reason that the .30 discount is extended to related companies, only, and results in a price that is affected by the relationship.
All parties agree that the proper basis of appraisement for the imported repair items is 19 U.S.C. 1401a(f) as none of the other preceding means of appraisement under 19 U.S.C. 1401a(b)-(e) is applicable.
ISSUE:
Whether the merchandise returned for repairs may be appraised under 19 U.S.C. 1401a(f) on the basis of actual repair charges calculated by use of a formula that uses two multipliers to make deductions from the new sales price list.
LAW AND ANALYSIS:
As stated above, you and the importer agree that the subject merchandise imported for repairs must be appraised under the fallback method, 19 U.S.C. 1401a(f), as none of the other means of appraisement under 19 U.S.C. 1401a(b) – (e) is applicable. You and the importer also agree that under the fallback method, the merchandise may be appraised pursuant to a formula agreed to between the parties. See, e.g. HRL 544845 dated November 9, 1993 (transaction value is eliminated because the components are not imported pursuant to a sale, but rather on consignment. The alternative bases of appraisement are not applicable. The merchandise must be appraised under the fallback method, 19 U.S.C. 1401a(f). The use of a fixed formula negotiated between the parties prior to importation is acceptable.)
The fallback method provides that merchandise should be appraised on the basis of a value derived from one of the prior methods reasonably adjusted to the extent necessary to arrive at a value. 19 U.S.C. 1401a(f)(1). Under 19 U.S.C. 1401a(b)(2)(B), the transaction value between a related buyer and seller is acceptable if the relationship did not influence the price actually paid or payable. Although both you and the importer agree that the merchandise returned for repairs may be appraised under the fallback method on the basis of actual repair charges calculated by use of a formula, you believe that one of the multipliers used in the formula results in a price that has been influenced by the relationship. Specifically, you contend that the merchandise may properly be appraised under the fallback method based on the use of Allen Bradley’s new price list times a multiplier of .428 to account for the defective nature of the returned part. What you dispute is the use of an additional multiplier, .30, which purportedly takes into account both the depreciation of the product and the fact that the product was initially sold at a discounted price to a related party.
In his memorandum dated December 5, 2000, to this office, the Chief, Metals & Machinery Branch, National Commodity Specialist Division, states that he is reluctant to dismiss the .30 multiplier simply because these are related transactions. Specifically, he notes:
It would appear from counsel’s comments re export sales that Allen Bradley only deals with related parties. Since the import transactions are not in the normal course of buying and selling, it would be difficult to make any determination as to whether the relationship has influenced the development of this formula. Furthermore, the .30 factor is described as a depreciation/discount allowance. This does not seem unreasonable given the fact that export sales are subject to discounts, and, inevitably, there must have been a degree of depreciation on the returned products.
We agree with the analysis by the Chief, Metals & Machinery Branch, National Commodity Specialist Division. When appraising under 19 U.S.C. 1401a(f), the statute directs us to appraise the merchandise on the basis of a value that is “derived form the methods set forth in such subsections, with such methods being reasonably adjusted to the extent necessary to arrive at a value.” 19 U.S.C. 1401a(f)(1). Thus, the statute expressly permits us to adjust the method used under a fallback appraisement, which in this case is the transaction value method. Although 19 U.S.C. 1401a(b)(2)(B) provides that transaction value between related parties is permissible when the relationship hasn’t influenced the price, the fallback method allows some flexibility in using the transaction value approach. Accordingly, given the fact that the .30 multiplier takes into account not only the originally discounted price to the related parties, with which you take issue, but also the depreciation on the returned products, we believe that price for the repairs is not unduly affected by the relationship between the parties.
Under these circumstances we find that the merchandise may be appraised under the fallback method using the repair charges as calculated by a formula that uses two multipliers to make deductions from the new sales price list.
HOLDING:
Based on the information submitted and for the reasons explained above, we find that the subject merchandise may be appraised under the fallback method using the repair charges calculated by use of a formula which takes into account two multipliers to make deductions from the new sales price list.
You are to mail this decision to the internal advice applicant no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page of the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Virginia L. Brown, Chief
Value Branch