OT:RR:CTF:VS H007484 KSG
Greg Pugh
Customs Compliance Manager
Communications Test Design, Inc.
1373 Enterprise Drive
West Chester, PA 19380
Re: Consideration of the proper method of appraisement for products imported for repair
Dear Mr. Pugh:
This is in response to your letter dated February 5, 2007, requesting a binding ruling on behalf of Communications Test Design Inc. (“CTDI”) as to the proper method of appraisement pursuant to 19 U.S.C. 1401a for certain returned goods. We note that in your submission, you refer to both imported and exported goods. Only imported goods are within the jurisdiction of Customs and Border Protection. Therefore, this ruling letter will only address imported goods.
FACTS:
CTDI is an independent repair service provider for telecommunications equipment. You state that CTDI has the in-house capability to test and repair over 50,000 different unit types. You state that 99.25% of CTDI’s repair activity are with related parties. CTDI does not manufacture the equipment in question and is neither the buyer or seller of the equipment.
You propose to value repaired equipment at 70% of the Original Equipment Manufacturer (“OEM”) price (which the OEM has provided to you). You propose to value unrepaired equipment at 43% of the OEM price upon importation. This would value the repair at 27% (70-43=27) of the OEM. When a repaired good is exported, you propose to value it at 27% of the OEM. Since the unrepaired equipment is valued at 43%, you state that this will result in a completed importation/exportation transaction of 70% of the OEM.
For example, if importing unrepaired goods from a foreign related party, a part with an OEM price of $100 would be assigned a value of $43 when imported into the
U.S. If importing a repaired good from a foreign related party, a part with an OEM price of $100 would be assigned a value of $27. You state that this will result in a completed exportation/reexportation value of 70% of the OEM.
ISSUE:
What is the proper method of appraisement for certain imported telecommunications equipment imported for repair?
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. 1401a. Transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for five enumerated statutory additions. 19 U.S.C. 1401a(b). In order for imported merchandise to be appraised under the transaction value method, it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States.
We need to examine whether a sale for exportation to the U.S. occurred between CTDI and its customers when the goods are imported into the U.S. for repair. Since no transfer of ownership occurs and no financial consideration is offered, we find that there is no sale for exportation to the United States. Therefore, the returned goods cannot be appraised on the basis of transaction value.
When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. 19 U.S.C. 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. 1401a(c)); deductive value (19 U.S.C. 1401a(d)); computed value (19 U.S.C. 1401a(e)); and the “fallback” method (19 U.S.C. 1401a(f)).
The transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, of merchandise exported to the United States at or about the same time as that being appraised. See 19 U.S.C. 1401a(c). We agree that given that the importations involve goods that are used and in need of repair, it is unlikely that there are sales of identical or similar merchandise for purposes of 19 U.S.C. 1401a(c).
Under the deductive value method, merchandise is appraised on the basis of the price at which it is sold in the U.S. in its condition as imported and in the greatest aggregate quantity either at or about the time of importation, or before the close of the 90th day after the date of importation. See 19 U.S.C. 1401a(d)(2)(A)(i)-(ii). This price is subject to certain enumerated deductions. See 19 U.S.C. 1401a(d)(3). In this case, because the imported goods are not being resold in the United States, they cannot be appraised under the deductive value method.
The next method of appraisement is the computed value method. Under this method, merchandise is appraised on the basis of the materials and processing costs incurred in the production of imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. See 19 U.S.C. 1401a(e)(1). Since CTDI is not the producer of the goods, there is insufficient information available to appraise the merchandise pursuant to the computed value method.
When merchandise cannot be appraised under the methods set forth in 19 U.S.C. 1401a(b)-(e), its value is to determined in accordance with the “fallback” method set forth in section 402(f) of the TAA. 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. See 19 U.S.C. 1401a(f) and 19 CFR 152.107.
CTDI requests that the value of the imported equipment be determined using the fallback method based on the methodology described above.
CBP has issued several rulings on the subject of imported articles to be repaired in the U.S. In each case, the value was determined using the fallback method derived from a prior method, e.g. transaction value or computed value with reasonable adjustments to take into account the fact that the imported goods were imported to be repaired and were used goods.
For example, in Headquarters Ruling Letter (HRL) 548688, dated October 20, 2005, CBP allowed an importer to appraise imported power supplies in need of repair by determining the current standard cost of new units, based on the cost of the parts, labor and other expenses associated with producing new units and then subtracting the average cost of repair. In HRL 548211, dated July 2, 2003, CBP allowed the importer to estimate the cost of repairs using a sampling technique applied to a random selection of spare parts, and subtract that from the current list price of the imported good to be repaired. The current list price was based on the importer’s published replacement parts list, which was the highest price for which each spare part was sold new, exclusive of any discounts. In HRL 547877, dated January 23, 2002, CBP held that for equipment returned to the U.S. for repair, two deductions from the new sales price list were permitted; one for the repair and one for depreciation.
In HRL 563470, dated June 12, 2006, CBP found that the proposed methodology was possibly even more accurate than the method used in HRL 548211 because the formula for estimating the repair cost and depreciation would be updated and recalculated annually.
In the instant case, the proposed valuation methodology would include the valuation of exported goods in the calculation. The valuation of exported goods is not within the jurisdiction of CBP. Therefore, to the extent that your proposal involves adding the import value and export value to arrive at a final value, this methodology is not appropriate under U.S. law. The law under which goods are valued, 19 U.S.C. 1401a, involves solely the valuation of imported goods. Therefore, to the extent that your proposal involves the addition of an import price and an export price, we are unable to consider this as an appropriate method for the valuation of imported goods.
Further, you propose a valuation method that is not derived from a valuation method such as computed value or deductive value. It is also not based on the actual costs of repairs of the specific products in question. The proposed figures appear to be randomly selected and arbitrary and would be used for a wide range of imported articles.
Unlike HRL 563470, your proposed methodology is not based on an annual estimate of the repair costs. You have not given a basis for the assignment of the various values. Accordingly, we find that the method for appraisement proposed by CTDI for the imported merchandise to be repaired is not acceptable under the fallback method.
HOLDING:
We find that the method for appraisement proposed by CTDI for the imported merchandise to be repaired is not acceptable under 19 U.S.C. 1401a(f).
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs official handling the transaction.
Sincerely,
Monika R. Brenner
Chief, Valuation & Special Programs Branch