OT:RR:CTF:VS H271449 AJR
Mr. Robert M. Klingon
The Klingon Law Firm
444 East 82nd Street, Ste. 14P
New York, NY 10028
Re: Apportionment of Assists; Fresh Metals; 19 C.F.R. § 152.103(e)
Dear Mr. Klingon:
This is in response to the ruling request, dated September 29, 2015, submitted on behalf of your client [XXXX] (the “Importer”), concerning the acceptability of the proposed method of apportioning fresh metals purchased by the Importer and provided to its foreign supplier (“Supplier”) at no cost.
Inasmuch as your request for confidentiality received by this office on December 11, 2015, conforms to the requirements of 19 C.F.R. § 177.2(b)(7), we will excise the bracketed confidential information from public versions of this decision.
FACTS:
The Importer purchases and imports coiled sheet metal alloys (“coiled alloys”) from the Supplier, a foreign alloy casting company. The alloy composition of these imported coiled alloys is either fully comprised or mostly comprised from scrap metal qualifying as U.S. metal (“qualifying U.S. metal(s)”) eligible for the duty exemption under subheading 9802.00.60, Harmonized Tariff Schedule of the United States (“HTSUS”). When the imported coiled alloys are not fully comprised of such qualifying U.S. metals, the remainder of the alloy composition is sourced from pure metals (referred to as “fresh metal(s)”). The Importer states that the fresh metals are classified under subheading [XXXX] duty rate, and under subheading [XXXX] duty rate, and do not qualify for the duty exemption under subheading 9802.00.60, HTSUS. The merchandise at issue are the coiled alloys when comprised from both these fresh metal and qualifying U.S. metals.
The Importer states that the fresh metals used in the subject coiled alloys are assists because the Importer provides them to the Supplier at no cost after purchasing them on the metal commodity market in arm’s length transactions. The Importer notes that the fresh metal assists are only for use in coiled alloys imported into the United States by the Importer.
According to the Importer, the Supplier produces the coiled alloys through a continuous casting process. The Supplier starts this process by mixing and melting metals in a casting furnace to achieve a very specific alloy composition. The “furnace charge” (i.e., the metals placed into the furnace for melting and casting) will first be sourced from the Supplier’s inventory of qualifying U.S. metals (“Inventory A”), which is an inventory that is kept segregated from other metals, according to Importer’s counsel. While certain alloy compositions only require sourcing from Inventory A, achieving the desired alloy composition for the subject coiled alloys requires an additional sourcing of metals taken from another inventory (“Inventory B”). The result is a furnace charge sourced from qualifying U.S. metals taken from Inventory A, and also fresh metals taken from Inventory B.
While the fresh metals and qualifying U.S. metals are physically segregated in different inventories, accounting for the amount and value of these metals entered and withdrawn from these inventories for purposes of producing the subject coiled alloys is managed under a single tolling account (“Tolling Account”). In the Tolling Account, an entry of fresh metal can be differentiated from an entry of qualifying U.S. metals by the description of the metal being entered; however, the increase in metals from the entry into either inventory is reflected in the Tolling Account by an increase to the specific metal elements involved. This means that entering a qualifying U.S. metal that contains 100 kilograms (kg) of metal element X into Inventory A, and entering 100 kg of fresh metal element X into Inventory B, will both be reflected in the Tolling Account by an increase of 100 kg of metal X (along with an increase to the other metal elements that comprise the qualifying U.S. metal for such entries). Then when specific amounts of metals are withdrawn from the inventories to produce a certain alloy composition, this is reflected in the Tolling Account by a reduction to the specific metals involved in creating the composition. For purposes of tracking with the Tolling Account, it is difficult to know, for instance, how much of the metal element X used to create a particular alloy composition comes from the fresh metal in Inventory B or the qualifying U.S. metal from Inventory A.
According to the Importer, once the furnace charge achieves the desired alloy composition, it is poured onto a casting line to produce a continuous metal alloy sheet, which is then rolled into one or more coils. The Importer notes that some of the furnace charge is retained in the furnace to maintain the furnace’s heat and physical integrity for the next production run, often for an alloy of a different composition. Counsel for the importer notes that this casting process was also described in a prior ruling issued to the Importer. See Headquarters Ruling Letter (“HQ”) [XXXX], concerning whether the qualifying U.S. metals undergoing this process are eligible for the duty exemption under subheading 9802.00.60, HTSUS.
Because of this continuous casting process, the Importer states that the fresh metals comprising a particular coiled alloy cannot be precisely identified when entered into the United States by the Importer. However, according to the Importer, the amount of fresh metals used in the Importer’s coiled alloy orders over a particular time period can be determined with certainty based on purchasing records from the Supplier and the Importer. The Importer states that both the Supplier and the Importer keep extensive records that show the actual cost of acquiring and delivering the fresh metals to the Supplier’s facility, the amount of fresh metals entering and leaving Inventory B over a period of time, the weight of each coiled alloy that is shipped to the United States, and the classification of each coiled alloy.
With regard to the weight of each coiled alloy, the Importer states that after the casting process, the coiled alloys are subject to annealing, rolling, or other manufacturing processes as specified by the customer. The Importer states that these manufacturing processes may produce scrap metal that alters the weight of the coiled alloys, preventing them from being accurately weighed until they are finished and ready for shipping. Because the time period from casting a coiled alloy to shipping generally takes between 60 and 90 days according to the Importer, the weight of coiled alloys using fresh metals produced in a particular month will likely not be known until two or three months later, when those coiled alloys are shipped.
The Importer states that the subject fresh metal assists cannot be determined by traditional valuation methods and cannot be apportioned by the three suggested methods set forth in 19 C.F.R. § 152.103(e)(1). As a result, the Importer proposes an alternative method of apportioning assists in accordance with generally accepted accounting principles (“GAAP”), pursuant to 19 C.F.R. § 152.103(e)(1), as follows:
The Importer and Supplier will determine the value of the fresh metal assists as purchased at the metal commodity rates from unrelated parties, including the cost of delivery to the Supplier’s casting facility.
The Importer and Supplier will determine the actual amount of fresh metal that has been taken from inventory and used for casting during each calendar month (the “Usage Month”), after the month’s accounts have closed. They will value each Usage Month’s fresh metal usage at the foregoing actual cost.
The Importer and Supplier will identify the coils shipped in the third month (the “Shipping Month”) following the Usage Month. After the Shipping Month’s accounts are closed, the Importer and Supplier will determine the [XXXX], HTSUS, classification under which the coils were entered, and the actual weight of the coils entered under each classification.
The Importer will then apportion the cost of fresh metal assists used in the Usage Month on a pro rata basis to the coils shipped during the Shipping Month, based on the ratio of the weight of the coils entered under each classification in the Shipping Month to the total weight of the coils shipped to the Importer in the U.S. during that month. Thus, if 50 tons were shipped in a hypothetical Shipping Month under two classifications, with 75% by weight entered at a [XXXX] duty rate and 25% by weight entered at a [XXXX] duty rate, then the cost of assists from the corresponding Usage Month would be apportioned 75% to the [XXXX] duty rate and 25% to the [XXXX] duty rate.
The Importer would pay the duty derived using the foregoing method by declaring it in the first entry following closing of accounts for the Shipping Month, in which coils are entered under the relevant classification.
ISSUE:
Whether the proposed method of apportioning the value of the fresh metal assists is acceptable for CBP appraisement purposes?
LAW AND ANALYSIS:
Subheading 9802.00.60, HTSUS, provides a partial duty exemption for:
[a]ny article of metal . . . manufactured in the United States or subject to a process of manufacture in the United States, if exported for further processing, and if the exported article as processed outside the United States, or the article which results from the processing outside the United States, is returned for the United States for further processing.
The general rate of duty for items eligible for 9802.00.60, HTSUS, is “[a] duty upon the value of such processing outside the United States (see U.S. note 3 of this subchapter).” U.S. note 3 of Chapter 98, HTSUS, provides, in pertinent part, as follows:
Articles repaired, altered, processed or otherwise changed in condition abroad.--The following provisions apply to only subheadings 9802.00.40 through 9802.00.60, inclusive:
The value of repairs, alterations, processing or other change in condition outside the United States shall be:
The cost to the importer of such change; or
If no charge is made, the value of such change,
as set out in the invoice and entry papers; except that, if the appraiser concludes that the amount so set out does not represent a reasonable cost or value, then the value of the change shall be determined in accordance with section 402 of the Tariff Act of 1930, as amended.
No appraisement of the imported article in its changed condition shall be required unless necessary to a determination of the rate or rates of duty applicable to such article.
The duty, if any, upon the value of the change in condition shall be at the rate which would apply to the article itself, as an entirety without constructive separation of its components, in its condition as imported if it were not within the purview of this subchapter…
[…]
In this case, the subject coiled alloys are comprised from qualifying U.S. metals and fresh metals. Counsel for the Importer explained that the qualifying U.S. metals are the metals found to be eligible for the partial duty exemption under subheading 9802.00.60, HTSUS, per HQ [XXXX], as subject to the processing described in such ruling. To this extent, the value to which the duty is applied, is the value from processing the qualifying U.S. metals outside the United States. Here, the qualifying U.S. metals are processed into coiled alloys abroad before returning to the United States. This processing includes the “continuous casting process” and the further processing prior to shipment (e.g. annealing, rolling, etc.). While the cost to the Importer for the labor and machining attributed to these processes may be reflected in the invoices and entry papers between the Importer and Supplier, the Importer is not charged for the Supplier’s acquisition of the fresh metals because the Supplier acquires the fresh metals from the Importer at no cost. Accordingly, the fresh metal assists attributing to this value must be determined in accordance with section 402 of the Tariff Act of 1930.
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 (19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined as the “price actually paid or payable for the merchandise when sold for exportation to the United States,” plus certain enumerated additions, including the value of any assist, apportioned as appropriate. 19 U.S.C. § 1401a(b)(1)(C). For the purposes of this decision, we assume that transaction value is the proper basis of appraisement. Furthermore, there is no dispute here that the fresh metals that the Importer provides to the Supplier are assists that must be added to the price actually paid or payable. The only question is whether the Importer’s proposed method of apportionment is acceptable to CBP.
CBP has authority to accept a method of apportionment that is “made in a reasonable manner appropriate to the circumstances and in accordance with [GAAP].” See 19 C.F.R. § 152.103(e)(1). The total value of the assist may be apportioned over the first shipment (if the importer wishes to pay duty on the entire value at once), the number of units produced up to the time of the first shipment, or the entire anticipated production. Id. In addition to these three methods, the importer may, as the Importer does here, request some other method of apportionment in accordance with GAAP. Id.
CBP has previously found that apportionment methods similar to the Importer’s proposed methodology satisfy the requirements of 19 C.F.R. § 152.103(e)(1). In HQ H015975, dated September 13, 2007, for example, CBP allowed an importer to declare all of its assists from a given month on the first entry in the following month. CBP found that this method was acceptable because the importer provided some assists “sporadically” and therefore could not easily apportion them to individual shipments and because the costs of transportation of the assists to the production facility were not paid on a per-unit basis. In HQ H086246, dated March 2, 2010, CBP allowed an importer to use the same methodology when the value of the assists varied each month depending on the price of materials, and could not be determined during any given month until the following month. See also HQ H264394, dated May 22, 2015; and, HQ H031244, dated April 10, 2009.
Similarly, the Importer states that it cannot easily apportion its assists to specific shipments due to the continuous casting process. Within this process, the accounting process does not track the amount of fresh metals used within a particular coiled alloy on a per-unit basis, but rather can determine the amount of fresh metals withdrawn from inventory over a period of time. Additionally, this process involves metal mixing and furnace retention, which leaves an unaccounted amount of fresh metals retained as part of the furnace. As a result, the coiled alloys will be processed in a furnace that has fresh metals retained from a previous production of coiled alloys, and this process will repeat itself with subsequent productions of coiled alloys. To this extent, we agree that it would be difficult to track the fresh metals used for a particular coiled alloy on a per-unit basis.
Instead, the Importer proposes to track the fresh metals over a period of time, taking the entire value of the actual amounts taken from inventory during a Usage Month, and allocating that value to the coiled alloys by their weight at the close of the Shipping Month. Using this proposed method, the Importer accounts for the fresh metals taken from inventory to create the alloy composition, the fresh metals that are retained in the furnace from prior productions, and the entire value of the fresh metals consumed during production, including those retained in the furnace or lost in scrap. We note that under this method, the Importer would declare the value of the fresh metal assists in the first entry after the Shipping Month’s accounts are closed. We also note that, while the Importer proposes a standard three month period between Usage Month and Shipping Month for purposes of calculating the value of the assists, the actual time period between the Usage Month and Shipping Month can vary between one to two weeks and up to, though rarely, six to nine months. As these time differences may not permit the Importer to know the value of the assists at the time of entry, the Importer may want to consider using the reconciliation program.
Based on the foregoing, we find that the proposed method of apportioning assists is reasonable and consistent with the requirements of 19 C.F.R. § 152.103(e)(1) provided that it meets GAAP. In accordance with U.S. note 3 of Chapter 98, HTSUS, such fresh metals assists constitute a value of the processing outside the United States and would be subject to the rate of duty applied per the classification of the imported coiled alloys, along with the value of the other processing outside the United States that is also subject to this rate of duty.
HOLDING
We find that the apportionment proposed by the Importer in this case is an acceptable method for CBP appraisement purposes of subheading 9802.00.60, HTSUS.
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 official handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch