VAL OT:RR:CTF:VS H234540 YAG
Mr. William R. Rucker
Drinker Biddle & Reath LLP
191 North Wacker Drive, Suite 3700
Chicago, IL 60606-1698
RE: Computed value; graduation gowns
Dear Mr. Rucker:
This is in response to your letter, dated October 11, 2012, in which you request a prospective ruling, on behalf of your client, [***] (“Company A”), concerning the proper valuation of graduation gowns to be imported by Company A from an unrelated maquiladora in Mexico.
You have asked that certain information submitted in connection with this ruling request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 CFR §177.2(b)(7), the request for confidentiality is approved. The information contained within brackets will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
Company A plans to import graduation gowns from an unrelated maquiladora in Mexico. Company A will provide materials to manufacture the imported gowns and will own the manufactured merchandise. The maquiladora will manufacture gowns from raw materials provided by Company A and temporarily store finished gowns in Mexico. The Mexican maquiladora will also provide quality control services for Company A, including, but not limited to, inspection, cleaning, and packaging of the finished gowns. The maquiladora will bill Company A directly, on a periodic basis (not shipment by shipment), for the manufacturing, quality control, and inventory services performed, as well as an applicable service fee, inclusive of any profit charged by Company A’s other manufacturers of finished gowns similarly stored in the maquiladora’s warehouse in Mexico.
When Company A needs gowns to satisfy customer orders in the United States, the maquiladora in Mexico will pull the finished gowns from inventory, package, and ship them to the United States. For cost savings, it is anticipated that the Mexican maquiladora will consolidate shipments and send them to a deconsolidation center in the United States.
Company A will act as the importer of record and will remain the owner of the raw materials and the finished gowns held in the maquiladora’s inventory. When the gowns are shipped to the United States, they will not be shipped directly to the U.S. customers, and the U.S. customers will not be identified on the international shipping documents. The shipping paperwork will identify the maquiladora as the shipper and Company A as the importer and consignee. The gowns will be shipped to Company A’s deconsolidation center, where the gowns will be separated into smaller packages and distributed to the U.S. customers. Pro forma invoices will be prepared for each shipment based on a product standard cost under the computed value method of appraisement. These pro forma invoices will be based upon actual material, labor, and overhead costs from the previous fiscal year, plus an allocated profit amount since the maquiladora will not have access to actual material costs, expenses, and other assists provided by Company A in order to adequately report and capture these costs and expenses at the time of entry.
It is stated that the title and risk of loss for the gowns will remain with Company A while the gowns are stored by the maquiladora in Mexico, imported into the United States, and entered into the deconsolidation facility. The amount of time the graduation gowns will remain in the deconsolidation facility before they are distributed to the U.S. customers will vary. The U.S. customers will take title to the imported gowns upon receipt, at which time the U.S. customers will make a payment to Company A. In order to report any price changes for the imported graduation gowns, Company A plans to join CBP’s reconciliation program, under which the actual costs and profit incurred by the maquiladora will be adjusted and reported to U.S. Customs and Border Protection (“CBP”).
ISSUE:
What is the appropriate method of appraisement for the imported merchandise?
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 primary basis of appraisement under the TAA is transaction value, which is defined as “the price actually paid or payable for the imported merchandise when sold for exportation to the United States,” plus certain enumerated additions thereto to the extent they are not otherwise included in the price actually paid or payable, including selling commissions incurred by the buyer and proceeds of subsequent resale of the imported merchandise. See 19 U.S.C. §1401a(b).
A prerequisite to finding a transaction value acceptable is the finding that a bona fide sale for exportation to the United States has occurred. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed.Cir. 1999), the Court of Appeals for the Federal Circuit found that the term “sold” for purposes of 19 U.S.C. §1401a(b)(1) means a transfer of title from one party to another for consideration (citing J.L. Wood vs. United States, 62 CCPA, 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). Several factors may indicate whether a bona fide sale occurs between a potential buyer and seller of the imported merchandise. In determining whether property or ownership has been transferred, CBP considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, CBP may examine whether the potential buyer paid for the goods and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller. See Headquarters Ruling Letter (“HRL”) H092448, dated May 4, 2010; HRL H012659, dated November 14, 2007; and, HRL 548273, dated April 17, 2003.
Finally, pursuant to the CBP’s Informed Compliance Publication, entitled “Bona Fide Sales and Sales for Exportation,” CBP will consider whether the buyer provided or could provide instructions to the seller, was free to sell the transferred item at any price he or she desired, selected or could select its own downstream customers without consulting with the seller, and could order the imported merchandise and have it delivered for its own inventory.
In the current situation the imported graduation gowns are not the subject of a sale between the maquiladora in Mexico and Company A. Company A has ownership of the raw materials and title/risk of loss of the finished gowns during the time the gowns are stored in the maquiladora’s warehouse in Mexico and upon the importation of the gowns into the United States. In other words, the maquiladora in Mexico assembles and stores the finished merchandise, and Company A maintains the ownership of the finished gowns while the merchandise is in storage and upon importation. As such, there is no sale for export between the Mexican maquiladora and Company A because Company A always has title to the goods.
In order for transaction value to apply in the present case, the only available sale transactions would be those between Company A and its unrelated U.S. customers. In HRL 548380,dated October 23, 2003, CBP considered the following facts in determining that the transaction between the U.S. affiliate and its U.S. customers would be used for valuation purposes: the maquiladora in Mexico did not manufacture any products unless there were specific orders from the U.S. affiliate’s customers; merchandise was not manufactured for inventory purposes; the maquiladora in Mexico supplied shipping documents to import the merchandise from Mexico to the United States; and the invoice prepared by the maquiladora in Mexico was the only invoice the U.S. affiliate’s customer in the United States received and paid, based on the prices shown on the invoice prepared by the maquiladora. Additionally, in HRL 548380, CBP found that there was a sale for exportation to the United States because the merchandise was manufactured in Mexico in direct response to an order placed by the U.S. customer, and the maquiladora prepared the shipping documents and invoices on behalf of the U.S. affiliate and shipped the merchandise to the U.S. customers who paid the invoice price. All of these factors, taken together, pointed to the fact that the maquiladora was the actual seller and the U.S. affiliate’s customers were the actual buyers. In this case, Company A plans to bring the goods into the deconsolidation center in the United States under the computed value method of appraisement and then sell the merchandise to the U.S. customer; the imported goods are not shipped directly to the U.S. customers; the merchandise is being manufactured and stored in Mexico; and, the U.S. customers make payments to Company A based on its invoices once they receive the merchandise after the importation. There are material differences between HRL 548380 and the present case, since there are 2 viable transactions here: (1) between the maquiladora in Mexico, and (2) Company A and Company A and the U.S. customers. The sale between Company A and the U.S. customers is a domestic sale, and it cannot be considered a bona fide sale for purposes of using the transaction value method of appraisement. Thus, the absence of a bona fide sale for export eliminates transaction value as a method to appraise the imported graduation gowns.
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)); deductive value (19 U.S.C. §1401a(d)); 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 (19 U.S.C. §1401a(c)). Specifically, this method refers to a previously accepted transaction value of identical or similar merchandise that was exported at or about the same time as the merchandise being valued. Treasury Decision (“T.D.”) 91-15 (March 29, 1991).
The term “identical merchandise” is defined in 19 U.S.C. §1401a(h)(2) as: (A) merchandise that is identical in all respects to, and was produced in the same country and by the same person as, the merchandise being appraised; or
(B) if merchandise meeting the requirements under subparagraph (A) cannot be found …, merchandise that is identical in all respects to, and was produced in the same country as, but not produced by the same person as, the merchandise being appraised.
The term “similar merchandise” is defined in 19 U.S.C. §1401a(h)(4) as:
(A) merchandise that – (i) was produced in the same country and by the same person as the merchandise being appraised, (ii) is like the merchandise being appraised in characteristics and component material, and (iii) is commercially interchangeable with the merchandise being appraised; or
(B) if merchandise meeting the requirements of subparagraph (A) cannot be found …, merchandise that – (i) was produced in the same country as, but not produced by the same person as, the merchandise being appraised, and (ii) meets the requirement set forth in subparagraph (A) (ii) and (iii).
The subject gowns will only by imported into the United States to fulfill specific customer orders, not pursuant to the sale between the maquiladora in Mexico and Company A. Therefore, there is no identical or similar merchandise, produced by the Mexican maquiladora for which transaction value can be determined. Furthermore, we have not been given any information indicating that there might be transaction value available in the sale of similar merchandise, produced in Mexico by a different manufacturer/maquiladora. Therefore, we assume that there are no sales of similar or identical merchandise made at or about the same time as the merchandise imported. If that is the case it will not be possible to appraise the imported graduation gowns on the basis of transaction value of identical or similar merchandise.
The next method of appraisement is deductive value. 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). However, at the time of entry, an importer may elect to reverse the order of appraisement under deductive and computed value. See 19 U.S.C. §1401a(a)(2) and 19 CFR §152.101(c). If the importer makes the request, but the value of the imported merchandise cannot be determined using the computed value method, the merchandise will be appraised using the deductive value method if it is possible to do so. If the deductive value cannot be determined, the appraised value will be determined as provided for in 19 CFR §152.107.
Therefore, providing Company A elects to exercise the option to reverse the order of appraisement under deductive value and computed value and presents CBP with the documents, supporting computed value, it is possible that the merchandise may be appraised under computed value.
19 U.S.C. §1401a(e) provides the following regarding computed value:
(1) 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 subparagraph (A) or (B); and (D) the packing costs.
(2) For purposes of paragraph (1) -- (A) the cost or value of materials under paragraph (1)(A) shall not include the amount of any internal tax imposed by the country of exportation that is directly applicable to the materials or their disposition if the tax is remitted or refunded upon the exportation of the merchandise in the production of which the materials were used; and (B) the amount for profits and general expenses under paragraph (1)(B) shall be based upon the producer’s profits and expenses, unless the producer’s profits and expenses are inconsistent with those usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by producers in the country of exportation for export to the United States, in which case the amount under paragraph (1)(B) shall be based on the usual profit and general expenses of such producers in such sales, as determined from sufficient information.
In your submission, you state that the maquiladora in Mexico will invoice Company A on a periodic basis for labor and related services provide. You mention that Company A will prepare a pro forma invoice to present to CBP on the basis of the data available from the previous year because the actual costs will not be available at the time of entry. Company A will use Reconciliation to report the actual costs and adjust the value. Nevertheless, since it is a prospective ruling request, you did not provide any of the documents substantiating the standard and actual costs and the relevant profit concerning the imported graduation gowns. Because we do not have any of the documents, which support appraisement under computed value, we cannot definitively rule that the merchandise should be appraised under computed value. We can only note that based upon the facts which you have provided to us, it is likely that appraisement under computed value is proper.
Section 141.88 of the Customs Regulations (19 CFR §141.88) provides the following with regard to computed value:
When the port 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 section 402(e). . .
Accordingly, Company A must be prepared to provide to CBP, if requested, the documentation, which supports the computed value method of appraisement.
HOLDING:
Based on the facts submitted, the subject merchandise should be appraised under computed value method of appraisement pursuant to 19 U.S.C. §1401a(e), provided Company A is prepared to present CBP with documentation to support appraisement under this method.
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 Customs Service 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.”
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch