OT:RR:CTF:VS H235016 RMC
Mr. Donald S. Stein
Greenberg Traurig LLP
2101 L St. NW
Suite 1000
Washington, DC 20037
Re: Valuation of Scrapped Aviation Parts from Canada
Dear Mr. Stein:
This is in response to your October 25, 2012, request for a ruling on behalf of your client StandardAero. Specifically, you asked whether your proposed valuation methodology under the “fallback method” is an acceptable way to value scrapped aviation parts that StandardAero will import from Canada.
FACTS:
StandardAero of Tempe, Arizona is an aviation service company that works with commercial, military, business aviation, helicopter, and industrial operations. StandardAero imports goods when it brings its clients’ aviation parts into the United States for maintenance, repair, or overhaul.
Some of the parts are shipped to StandardAero-Winnipeg, an affiliate in Winnipeg, Canada (“StandardAero-Winnipeg”). StandardAero-Winnipeg is in the same business of maintaining, repairing, and overhauling aircraft parts. StandardAero-Winnipeg does not purchase the parts, and it returns them to customers after servicing. However, certain parts removed from gas turbine engines are deemed not repairable in accordance with the approved technical manuals published by the original equipment manufacturer (“OEM”) or the customer’s technical authorities (e.g., government-issued repair manuals). These parts are considered scrap because the OEM guidelines and airworthiness authorities prohibit their reinstallation in gas turbine engines.
Because the scrap parts cannot be reused, StandardAero-Winnipeg’s customers often do not want them returned. In those cases, StandardAero-Winnipeg boxes the parts up and sends them to American Iron & Metal LP (“AIM”) in Montreal for destruction. In exchange for the scrapped parts, AIM pays StandardAero-Winnipeg about $0.43 per pound of salvageable metal.
At times, however, some customers request the return of parts that StandardAero-Winnipeg considers to be scrap. In those cases, StandardAero-Winnipeg sends the goods back to the United States. StandardAero states that it does not purchase the goods it imports. Further, it claims that it does not have information on the other statutorily mandated valuations for the imported scrap, and therefore proposes to value the goods for customs purposes under the “fallback method” using the following 8-step methodology:
Select approximately 15% of the containers that StandardAero-Winnipeg sends to American Iron & Metal for destruction every year,
List each item in each container,
Determine the list price value for each item in its serviceable condition based on OEM annual price listings,
Determine the total original value of the items in each container,
Determine the weight of each container and the items in it,
Calculate the scrap value of each container by multiplying the weight of the container by the per pound amount that AIM pays StandardAero-Winnipeg,
Calculate the ratio of the original list price of the items in each container to its calculated scrap value, and
Calculate the average value ratio for the number of containers used in the sampling.
For example, StandardAero applied the methodology described above to its 2011 scrap production. It analyzed 15% of scrap boxes (10 out of 64) sent to AIM for destruction and determined the total original value of the items in the box, their weight, the scrap value, and the ratio between the original value and the scrap value. These ratios ranged from 0.007% to 0.061%, with an average of 0.026%. Under its methodology, the value of a scrap part for customs purposes would therefore be 0.026% of its original value.
StandardAero further proposes to recalculate a new ratio every 12 months using the same methodology. It would then apply that ratio to the next 12 months of scrap imports.
ISSUE:
Whether StandardAero’s proposed valuation methodology under the “fallback method” is an acceptable way to value scrap gas-turbine engine parts imported from Canada.
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 is the “price actually paid or payable for the merchandise when sold for exportation to the United States.” Here, there is no “sale for export to the United States” because StandardAero does not purchase the scrapped aviation parts. The transaction value method therefore cannot be applied.
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)); the deductive value (19 U.S.C. § 1401a(d)); the 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). As stated above, there is no sale here, so this method of appraisement is also unavailable.
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. 19 U.S.C. § 1401a(d)(2)(A)(i)-(ii). This price is subject to certain enumerated deductions. 19 U.S.C. 1401a(d)(3). Here, StandardAero is not selling the scrap aviation parts to U.S. customers, so the deductive value method is unavailable.
Under the computed value method, merchandise is appraised on the basis of the material 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. 19 U.S.C. § 1401a(e)(1). This method is inapplicable for two reasons. First, there was no information provided on which to calculate computed value because StandardAero is not the original manufacturer of the parts. Second, even if there were sufficient information to make this calculation, the scrapped parts have such a diminished value compared to new parts that computed value would not be an appropriate measure of the parts’ current value. See H167495, dated June 28, 2011.
Because none of the more preferred methods of valuation are available, StandardAero’s scrapped aviation parts must be appraised under the “fallback method.” The “fallback method” allows for valuation based on a value derived from one of the methods described above with reasonable adjustments “to the extent necessary to arrive at a value.” 19 U.S.C. § 1401a(f). Among other exclusions, the “price of merchandise in the domestic market of the country of exportation” cannot form the basis of an appraisal under the “fallback method.” 19 U.S.C. § 1401a(f)(2)(C).
As noted above, StandardAero has proposed an 8-step process to value the scrapped aviation parts under the “fallback method.” This process uses a sample of scrap shipments to develop an average ratio of the value of a working gas-turbine part to its value as scrap metal
as determined by the per-pound price that AIM pays in Montreal. The ratio is then multiplied by the original value of a part to produce an estimated value of the scrap. For example, using StandardAero’s 2011 average ratio of 0.026%, a part that was worth $1,000 in working condition would be appraised at $0.26 in scrap condition.
The problem with StandardAero’s proposed method is that it relies in part on the price of scrap metal in Canada’s domestic market. Specifically, the ratio is determined by the price that AIM pays for scrap metal in Montreal, Canada. Because “the price of merchandise in the domestic market of the country of exportation” cannot form the basis of a “fallback method” appraisal under 19 U.S.C. § 1401a(f)(2)(C), we find that the proposed valuation methodology is unacceptable. Furthermore, StandardAero lists each item in the container in order to come up with a ratio even though all of the items are not returned to customers as “scrap.” Therefore, a better estimate should be devised by focusing on the particular parts that are actually returned to the United States.
HOLDING:
We find that StandardAero’s proposed methodology under the “fallback method” an improper way to value scrap gas-turbine engine parts imported from Canada.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch