OT:RR:CTF:VS H333787 JH
Brian F. Walsh
Barnes, Richardson & Colburn, LLP
303 East Wacker Drive
Suite 305
Chicago, IL 60601
RE: Valuation of Returned Clothing
Dear Mr. Walsh,
This is in response to your correspondence dated July 25, 2023, in which you request a ruling on behalf of your client, MASC, Inc. (“SuperCircle”). Your request concerns the valuation of returned or defective unsalable clothing imported to be recycled into new fabric in the United States. Your request, submitted as an electronic ruling request, was forwarded to this office from the National Commodity Specialist Division for response.
FACTS:
According to your submission, SuperCircle will be the importer of record into the United States for returned or defective clothing to be recycled into new fabric. SuperCircle will be paid a fee by its supplier in Mexico, MeUndies, Inc., to accept and import this clothing SuperCircle will make no payment to the supplier in these transactions. Once imported, SuperCircle will compress and prepare the clothing for recycling. SuperCircle will pay other companies to perform the recycling service in the United States for an approximate cost of $0.30 per pound of clothing.
You claim that the subject clothing will have no commercial value as articles of clothing in the condition as imported, and may not legally be sold as clothing. This clothing was ordered, may have been tried on, and for whatever reason was not kept by the customer. These rejections may have been for personal preferences, such as the customer disapproving of the color, fit, or sizing of the clothing, or the clothing may have been defective. It should be noted that the new clothing articles were sent to customers in North America, either the United States, Canada, or Mexico. The clothing is manufactured in various other countries. After rejection, MeUndies, Inc.’s returned clothing is stored in warehouse facilities in Tijuana, Mexico and will be imported into the United States in bulk for recycling.
ISSUE:
What is the correct method of appraising the merchandise?
LAW & 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 (19 U.S.C. § 1401a; TAA). The primary method of appraisement is transaction value, defined as the “price actually paid or payable for the merchandise when sold for exportation to the United States,” plus amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. 19 U.S.C. § 1401a(b)(1).
When imported merchandise cannot be appraised on the basis of transaction value, it is to be appraised in accordance with the remaining methods of valuation, applied in sequential order. The alternative bases of appraisement, in order of precedence, are: the transaction value of identical merchandise; the transaction value of similar merchandise; deductive value; and computed value. If the value of imported merchandise cannot be determined under these methods, it is to be determined in accordance with section 402(f) of the TAA, known as the “fallback method.” 19 U.S.C. § 1401a(f).
In the instant case, the imported merchandise is not the subject of a sale and therefore cannot be appraised under the transaction value method set forth in section 402(b) of the TAA. 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. 19 U.S.C. § 1401a(c). Since we have not been provided any information concerning the transaction value of identical or similar merchandise, we are not able to value the imported merchandise under this method of appraisement.
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. 19 U.S.C. § 1401a(d)(2). This price is also subject to certain enumerated deductions. 19 U.S.C. 1401a(d)(3). In the instant case, the imported merchandise is not sold in its condition as imported. Merchandise that is not sold in its condition as imported can still be appraised under deductive value, however, provided the importer so elects. 19 U.S.C. § 1401a(d)(2)(A)(iii). In this case, SuperCircle has not made such an election. As a result, the imported merchandise cannot be appraised on the basis of the deductive value method.
Under the computed value method, merchandise is appraised on the basis of the material and processing costs incurred in the production of the 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). Since there is no information on which to base computed value, this method is also inapplicable.
Section 402(f) of the TAA provides that imported merchandise is to be appraised on the basis of a method derived from one of the methods set forth in sections 402(b) – (e), such methods reasonably adjusted to the extent necessary to arrive at a value. However, there are certain prohibited bases of appraisement under 402(f), including the selling price of merchandise produced in the United States, minimum values and arbitrary or fictitious values. 19 U.S.C. § 1401a(f)(2).
Nevertheless, under section 500 of the Tariff Act of 1930, as amended, which sets forth CBP’s general appraisement authority, the appraising officer may:
Fix the final appraisement of merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, or other document to the contrary notwithstanding. …
19 U.S.C. § 1500(a).
In this regard, the Statement of Administrative Action (SAA), which forms part of the legislative history of the TAA, provides in pertinent part:
Section 500 allows Customs to consider the best evidence available in appraising merchandise … . [It] authorize (sic) the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise. This could be the invoice, the contract between the parties, or even the recordkeeping of either of the parties to the contract.
Statement of Administrative Action, H.R. Doc. No. 153, 96 Cong., 1st Sess., pt. 2, reprinted in, Department of the Treasury, Customs Valuation under the Trade Agreements Act of 1979 (October 1981), at 67. Accordingly, if the value of imported merchandise cannot be determined on the basis of a method derived from sections 402(b)-(e), we find that the value of the imported merchandise may be determined under the fallback method provided for in section 402(f) of the TAA, using all reasonable ways and means, so long as the method is not specifically precluded under 19 U.S.C. § 1401a(f)(2).
CBP has previously found that merchandise entering the U.S. for purposes of recycling should be appraised under the fallback method using the fee paid to take possession of the merchandise. See Headquarters Ruling Letter (“HQ”) H130310, dated November 18, 2010; and HQ H262963, dated March 3, 2016. Similarly, CBP has previously found that for waste being imported to be disposed of, for which a fee was paid to the U.S. company responsible for disposing of the waste, the fee being paid for disposal was an appropriate value for the waste. See HQ 545017, dated August 19, 1994; HQ 547147, dated March 23, 1999; and HQ H019073, dated November 2, 2007. In HQ 545017, petroleum waste oil was imported into the U.S. from Canada for disposal. The Canadian company paid the U.S. company to dispose the waste oil. The Canadian exporter argued that the waste oil should be appraised at a nominal value. However, CBP found that it was not unreasonable for the waste oil to be valued at the fee paid for disposal and the company did not provide any documentation to show otherwise. In HQ 547147, Waste Management, Inc. (“WMI”) imported solid waste into the U.S. for disposal, and attempted to distinguish HQ 545017. WMI argued that the waste itself had no value, and that the fee was paid for disposing the waste in the U.S. after importation, not the waste itself. CBP found that the fallback method using the disposal fee was reasonable and that the disposal fee was “the only available information which [could] be quantitatively documented.” HQ 547147. Similarly, in HQ H019073, soil contaminated with depleted uranium was imported from Kuwait for disposal in Idaho. The soil was not sold and had no commercial value. CBP held the disposal fee received by the facility in Idaho was a reasonable fallback method to value the soil.
Here, as in the above cases, the imported merchandise is not being sold to SuperCircle. Rather, SuperCircle is being paid a fee to take possession of the returned or defective clothing in Mexico and to import, compress and prepare the clothing for recycling.
Although, unlike the cases cited, the subject clothing is recycled instead of disposed of, it is not in its recycled state at the time of importation. Therefore, in accordance with the cited rulings, we find that the imported merchandise may be appraised under the fallback method using the fee paid by MeUndies, Inc. to SuperCircle to take possession, import, compress, and prepare the returned or defective clothing for recycling.
However, for purposes of valuation under the fallback method, as it is claimed that the clothing is defective, has no commercial value, and is not legally saleable in their imported condition, the importer should be prepared to support such claims by providing further evidence, as requested by the Apparel, Footwear, and Textiles, Center of Excellence and Expertise to establish that the merchandise is indeed defective or damaged and has no commercial value. Such information may, but is not limited to, the submission of specifications, quality control reports, internal and external correspondence addressing the relevant merchandise, photographs, samples, and/or any other documentation that individually or cumulatively establishes the condition of the merchandise at the time of importation.
HOLDING:
Based on the information presented, the imported merchandise shall be appraised under the fallback method using the fee paid to SuperCircle to take possession, import, compress, and prepare the returned or defective clothing for recycling.
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