OT:RR:CTF:VS H312417 CMR
Zack Hadzismajlovic, Esq.
McCarter & English, LLP
Worldwide Plaza
825 Eighth Avenue, 31st Floor
New York, NY 10019-7475
RE: Request regarding valuation methodology for fabricated metals; Computed Value; 19 C.F.R. § 152.103(e); Reconciliation
Dear Mr. Hadzismajlovic:
This is response to your request of June 3, 2020, submitted on behalf of your client, for a ruling on a proposed valuation methodology with regard to metal coils produced by a related party in Europe utilizing United States scrap metal and foreign “fresh” metal. Your client, the importer, was previously the subject of an audit review by the Office of Regulatory Audit at which time it was determined that transaction value could not be used for appraisement purposes as the relationship of the supplier and importer was found to influence the price. Your client proposes to use the computed value method of appraisement and file reconciliation entries as certain information regarding the value calculation is not known at the time of entry.
FACTS:
The importer will purchase and import coil sheet metal alloys (“coil alloys”) from a related party supplier who operates an integrated alloy casting mill. The importer will provide the supplier with scrap metal qualifying as U.S. metal (“qualifying U.S. metal(s)”) eligible for the partial duty exemption under subheading 9802.00.60, Harmonized Tariff Schedule of the United States (“HTSUS”). The importer retains title to the U.S. scrap metal provided to the supplier and the supplier keeps the U.S. scrap metal segregated in a separate inventory, for example, Inventory A. When possible, the coil alloys produced by the supplier for the importer will use only metals from the U.S. scrap metal provided by the importer. However, at times, the supplier must supplement the U.S. scrap metal with fresh metal (pure metal) in order to reach the correct alloy composition for the coils. The coil alloys at issue here are only those that contain some percentage of fresh metal.
The fresh metal is purchased by the supplier and stored in a separate inventory, for example, Inventory B. When fresh metal is needed to produce a certain alloy composition, the supplier removes the fresh metal from inventory and invoices the importer the cost of the fresh metal based upon the spot price of the metal that day on the London Metals Exchange. The importer’s payment for the fresh metal is due within 60 days of the date of the invoice.
In order to track the metals from Inventory A and Inventory B, the supplier maintains a “Tolling Account.” Importer’s counsel explains that “[t]he increase in metals from the entry into either inventory is reflected in the Tolling Account by an increase to the specific metal elements involved.” In other words, the accounting for the amount and value of the metals entered and withdrawn from Inventories A and B which are used in the production of the coiled alloys is managed under a single account, that is, the Tolling Account. You have provided an example, explaining the use of the Tolling Account:
Entering a qualifying U.S. metal that contains 100 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 in other metal elements that comprise the qualifying U.S. metal for such entries).
When specific amounts of metal are taken 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.
As noted above, any fresh metal used by the supplier from Inventory B is immediately invoiced to the buyer who has 60 days in which to pay the invoiced amount. Due to the nature of the production process, the sale of fresh metal used in production to the importer may occur months before the sale and shipment of the coil alloys. The supplier does not know the cost of fresh metal used per shipment of coil alloys, but can determine the amount of fresh metal used in shipped coil alloys and the amount paid by the buyer for the fresh metal used in producing the coil alloys over a period of time, such as, at the end of the supplier’s fiscal year. Due to the fact that the purchases of fresh metal by the buyer from the supplier vary in price, a first in, first out, approach is also utilized in determining the cost of the fresh metal over a time period.
The importer proposes to use computed value for purposes of appraisement of the merchandise and the Reconciliation program to provide CBP with the final value of the merchandise using the actual costs of the fresh metals as ascertained at the end of the supplier’s fiscal year. At the time the coil alloys are shipped to the United States, the supplier will prepare a pro forma invoice for the importer which will include a value for the fresh metals based upon the planned budgeted costs for the supplier’s fiscal year. As you explain, at the end of its fiscal year, the supplier calculates
the valuation of the fresh metals according to its actual costs from the prior fiscal year in accordance to the Generally Accepted Accounting Principle (GAAP) of its country. The supplier provides the importer with an updated valuation and cost for the purchased coil
alloys based on the adjustment of the costs of the fresh metals.
You state that under the computed value method of appraisement, the supplier will include actual production costs for the following:
• manufacturing costs (machine hour rate and machine usage);
• material costs (costs of purchased services, purchased material and plating
layer);
• profit margin;
• general expenses; packaging costs;
• handling costs; and
• paper interleave material costs.
ISSUE:
Whether the importer’s proposed method of appraisement and use of the Reconciliation program for such appraisement acceptable.
LAW AND ANALYSIS:
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 the merchandise when sold for exportation to the United States” plus certain statutory additions. 19 U.S.C. § 1401a(b)(1). When transaction value appraisement is not possible, such as in this case where the relationship between the parties affects the price, we must go through the hierarchy of the statute, i.e, 19 U.S.C. § 1401a, to determine the proper method of appraisement.
Previously, your client was the subject of a CBP audit wherein it was determined that computed value was the appropriate method for determining the value of the subject merchandise. The audit report concluded that there were no sales to the United States of similar or identical merchandise and that deductive value could not be used as the merchandise was not sold in its condition as imported. While superdeductive value might be a possibility, that is using the methodology set forth under 19 U.S.C. § 1401a(d)(iii), it must be elected by your client who has clearly chosen to use computed value.
With regard to computed value, 19 U.S.C. § 1401a(e)(1) provides: “The computed value of imported merchandise is the sum of— (A) the cost or value of the materials and the fabrication and other processing of any kind employed in the production of the imported merchandise; (B) an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by the producers in the country of exportation for export to the United States; (C) any assist, if its value is not included under sub-paragraph (A) or (B); and (D) the packing costs.
Based on the information provided, your client intends to use the information required by the statute to determine the computed value of the imported coil alloys. The only difficulty presented is the value of the fresh metal used in the production which cannot be determined until the end of the fiscal year. We agree that use of the Reconciliation Program to account for the actual costs of the fresh metal used in imported coil alloys is appropriate and, as the information regarding the costs of the fresh metals is recorded in the books of the supplier in accordance with the applicable GAAP, your proposed method is reasonable and acceptable.
We note that § 141.88 of the Customs Regulations (19 CFR §141.88) provides the following with regard to computed value:
When the Center director determines that information as to computed value is necessary in the appraisement of any class or kind of merchandise, he shall so notify the importer, and thereafter, invoices of such merchandise shall contain a verified statement by the manufacturer or producer of computed value as defined in § 402(e), Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(e)).
Accordingly, your client must be prepared to provide to CBP, if requested, the documentation, which supports the computed value method of appraisement.
HOLDING:
The proposed method of determining the costs of fresh metals used in the production of the imported coil alloys and the use of the Reconciliation Program for ascertaining the actual valuation of the imported coil alloys under computed value appears reasonable and is acceptable to CBP.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are 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