OT:RR:CTF:VS H288233 JMV
Mr. Stefan Einfalt, CEO
voestalpine Texas, LLC
2800 Kay Bailey Hutchinson Road
Portland, TX 78374
RE: Acceptability of Formula and Future Adjustment for Price Actually Paid or Payable
Dear Mr. Einfalt:
This is in reply to your letter dated July 11, 2017, on behalf of voestalpine Texas, LLC. (“voestalpine”), in which you requested a ruling, pursuant to 19 C.F.R. Part 177, as to whether the formula proposed by voestalpine is acceptable for appraisement of the imported iron oxide pellets under transaction value. Additionally, you asked whether voestalpine may reconcile provisional values with final values via the ACE Reconciliation Program once the transaction value is determined.
voestalpine requested confidential treatment for certain information contained in its submission and in the file. Pursuant to 19 C.F.R. § 177.2(b)(7), the identified information has been bracketed and will be redacted in the public version of this ruling.
FACTS:
voestalpine Texas LLC is a wholly-owned subsidiary of voestalpine AG, headquartered in Linz, Austria. The voestalpine Group has 500 companies in more than 50 countries and consists of four divisions: Steel, Special Steel, Metal Engineering, and Metal Forming. As part of its U.S. operations, voestalpine operates a Free Trade Zone (“FTZ”) within CBP limits of the Port of Corpus Christi. Within the FTZ, voestalpine constructed a direct reduction plant to create Hot Briquetted Iron (“HBI”), which is a feed stock in the production of steel products.
HBI is made from iron oxide pellets, which voestalpine sources from unrelated foreign sellers. voestalpine receives the oxide pellets into the FTZ as a foreign status good. After the production of the iron oxide pellets into HBI, the HBI is withdrawn from the FTZ and shipped to customers overseas and in the United States. In accordance with voestalpine’s FTZ Inventory and Recordkeeping System, the value reported to CBP is based on the value of the foreign status pellets admitted into the zone.
The value of the imported pellets is based on the [XXXXX]. The [XXXXX] is an industry specific index. Pursuant to the written agreement between voestalpine and the seller, the pricing formula is [XXXXXXXXXX]. The agreement further states that the provisional FOB price “shall be applied for the shipments of each respective month” and the “Provisional FOB price shall subsequently be adjusted to the final FOB Price calculated as hereinabove.”
Since the price is based on an index, the invoice associated with the shipment of pellets lists a provisional price. The formula reflecting the provisional price is a bi-weekly average of the daily closing [XXXXX] for the month of the shipment. As such, when voestalpine admits the pellets into the FTZ, voestalpine will be reporting a provisional value to CBP.
At the end of the quarter and after the iron ore pellets are admitted into the zone, voestalpine will be in receipt of the final formula pricing for the admitted pellets. voestalpine will use this data to calculate the final price of the raw material imported, and will prepare and issue a memo listing either a debit or credit reflecting the change in price based on the difference between the provisional and final prices.
At the time the final price is determined, the imported pellets could have been in zone inventory for any period of time ranging from one to 90 days. Additionally, both the iron oxide pellets admitted into- and the HBI withdrawn from the FTZ are duty-free in the Harmonized Tariff Schedule of the United States.
ISSUE:
Whether the formula proposed by voestalpine is acceptable for appraisement of the imported product under transaction value.
Whether the ACE Reconciliation Program is the proper method for adjusting the final price of the iron ore pellets.
LAW AND ANALYSIS:
Whether the formula proposed by voestalpine is acceptable for appraisement of the imported product under transaction value.
Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979, (“TAA”) 19 U.S.C. § 1401a. The preferred method of appraisement is transaction value, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. 19 U.S.C. § 1401a(b)(1).
Section 402(b)(4)(B) of the TAA provides that any rebate of, or other decrease in, the price actually paid or payable made or otherwise effected between the buyer and seller after the date of importation of the merchandise will be disregarded in determining transaction value. See also 19 CFR 152.103(a)(4). However, we have ruled that if the decrease in price is pursuant to a formula which was in existence prior to the date of exportation, such decrease will not be disregarded. See Headquarters Ruling Letter ("HRL") 544944, May 26, 1992.
In this regard, the Customs Regulation 19 CFR 152.103(a)(1) provides that in determining transaction value, the price actually paid or payable will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula, such as the price in effect on the date of export in the London Commodity Market.
Customs has issued several rulings on the subject stating that only the methodology must be fixed at the time of importation; the actual amount can be calculated at a later date. As noted in HRL H023813, dated December 1, 2008, if the final sales price of imported merchandise is not ascertainable at the time of importation, the phrase “price in effect on the date of export” may be interpreted to mean that the price actually paid or payable by application of a formula.
A formula in a contract may be acceptable under transaction value if the formula is based on a future event over which neither the seller nor the buyer has any control. HRL 546736, March 31, 1998. The formula must be based on be an objective standard not under the control of the buyer or seller, such as the price in effect on the date of export in the London Commodity Market, the example in 19 CFR 152.103(a)(1) of an acceptable formula used to determine the price actually paid or payable.
If the parties have any control over the adjusted price, the adjusted prices will not be accepted by CBP. In HRL 546231, February 10, 1997, we found that because the parties exercised control over whether and to what degree the price would be adjusted in response to changing market conditions, the pricing methodology could not be considered a “formula” within the meaning of 19 CFR 152.103(a)(1) and transaction value was eliminated as a basis of appraisement.
In the instant case, the formula is based on an objective standard over which neither the seller nor the buyer have any control, specifically, the [XXXXX], which is a benchmark assessment published by a third party, [XXXXX]. Accordingly, we find that the pricing formula constitutes an acceptable mechanism to determine the price actually paid or payable for the imported merchandise.
Whether the ACE Reconciliation Program is the proper method for adjusting the final price of the iron ore pellets.
A number of mechanisms are available for an importer to submit the final values for imports. The ACE Reconciliation Program is a method that allows importers to revise certain elements of an entry summary that were not determinable at the time of entry. Additionally, the Program is open to reconciliation of all value issues and FTZ consumption entries. Automated Commercial Environment Reconciliation (Prototype): A Guide to Compliance, Version 1.0b, September 2016. Therefore, we find that the ACE Reconciliation Program is a proper method for adjusting the final value of the iron ore pellets.
HOLDING:
As set forth above, the subject merchandise may be appraised using the formula set forth in the written agreement between voestalpine and its sellers. Further, the ACE Reconciliation Program is a proper method for adjusting the final value of the iron ore pellets.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
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 CBP officer handling the transaction
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch