VAL-OT:RR:CTF:VS H251593 RSD
Port Director
U.S. Customs and Border Protection
Lincoln/Juarez Bridge, Administrative Bldg. #2
Laredo, TX 78040
RE: Appraisement of Imported Scrap Materials Processed in the U.S. to Recover Precious Metals; Fallback Method, 19 U.S.C. § 1401a(f)
Dear Port Director:
This is in response to your memorandum dated January 8, 2014, concerning the request for internal advice on the proper valuation of imported scrap materials, from which precious metals are recovered.
FACTS:
Sabin Metal Corporation (Sabin) is an importer of “scrap” materials, such as: scrap industrial parts, spent catalysts and scrap electronic equipment. Sabin’s primary business is recovering precious metals, primarily platinum, from imported scrap materials. Most of Sabin’s imported shipments arrive on consignment from its customers who pay Sabin a processing fee to recover the precious metals from the imported scrap on their behalf. The scrap material is collected both domestically and internationally and is shipped to one of Sabin’s main facilities in Scottsville, New York or Williston, North Dakota for processing. The scrap material is normally coated or impregnated with precious metal, and it takes many different forms, including spent catalysts, electronics scrap, spent sputtering targets, industrial equipment, furnace bricks and many other sources.
The processes for recovering the precious metal vary depending on the type of scrap material from which it is being recovered. According to counsel, in most instances the recovery involves multiple chemical and physical processing steps using proprietary technology and knowhow that Sabin developed. Once separated from the scrap material, the precious metals can take multiple forms such as bullion alloyed with copper, ground powders, ash, etc. Once the precious metal is in its recovered form, Sabin determines the quantity of precious metal recovered from the scrap using an assay, which reveals the amount of metal present in the scrap material at the time of importation. In most instances, Sabin further refines the precious metal from the recovered form into a form suitable for sale (essentially pure). In other instances, Sabin will ship the recovered metal to a third party refiner for further refining. In either case, the refined precious metal continues to be owned by Sabin’s customer and Sabin simply has possession. Typically, Sabin will deposit the metal in a pool account on the customer’s behalf.
When Sabin uses a third party to perform the recovery of precious metals, it will pass the charges from the third party on with a mark-up to its customer as part of its processing fee. In the event that Sabin later purchases the precious metals from its customer after recovery is complete, such a sale constitutes a separate transaction unrelated to the precious metal recovery transaction.
Sabin states that at the time of entry, an accurate value of the scrap material shipments cannot be determined because the amount of precious metal contained in imported scrap material is not known. In addition, because of the volatility of the precious metals market, it is difficult to determine a set price at any given moment in time that is easily linked to a Customs entry. However, Sabin and its foreign customers have developed methods to estimate the weight of the precious metal content of various types of scrap material with some accuracy based upon previous shipments of similar merchandise. The estimated weight of precious metal in a load of scrap material is the basis for the value declared at the time of entry.
After the scrap material is imported, chemical sampling and testing techniques are used to better determine the weight of the precious metals present in every shipment of scrap material that it receives. This testing process is laid out in Sabin’s contracts with its foreign customers. By testing the recovered metals, Sabin determines the weight of the precious metals in a shipment. Sabin then returns the agreed amount of the precious metal to its customer, and this amount of the precious metal is reflected in the final settlement document between Sabin and its foreign customer.
Because Sabin’s is not able to precisely determine the value of inbound shipments at the time of entry, Sabin will use the reconciliation program and flag its entries for reconciliation on valuation. To determine the final Customs value of the imported scrap material, Sabin has proposed using the weight of the precious metal recovered from the scrap material as agreed between Sabin and its customer in the final settlement, multiplied by the published value of the precious metal on the New York Mercantile Exchange on the date of entry, minus the processing fee charged by Sabin.
ISSUE:
What is the correct method of appraising the imported scrap materials?
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 (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 the value of certain statutorily enumerated additions thereto. 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(a)(1).
In order for imported merchandise to be appraised under the transaction value method it must be the subject of a bona fide sale between a buyer and seller and it must be a sale for exportation to the United States. In the instant case, because the scrap materials are consigned, there is no sale when the imported scrap materials enter the United States, and therefore they cannot be appraised under the transaction value method set forth in section 402(b) of the TAA. The methods of appraisement set forth in sections 402(c)-(e) of the TAA cannot be used as information pertaining to these methods is not available or applicable in the present circumstances. Accordingly, the imported merchandise must be appraised under the fallback method provided for under section 402(f) of the TAA.
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), reasonably adjusted to the extent necessary to arrive at a value. However, there are certain prohibited bases of appraisement under section 402(f), including the selling price of merchandise produced in the United States, minimum values, or 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 Customs’ 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, other document to the contrary notwithstanding....
19 U.S.C. § 1500(a) (emphasis added).
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. It is our opinion that the value of the imported scrap materials 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 particular basis is not specifically precluded under section 402(f)(2)(D).
In this case, we recognize that appraising the scrap materials raises some unique difficulties because Sabin will not know the exact amount of precious metals contained therein until after it is imported into the United States, and it also will not know how much to charge for removing the precious metals from the scrap material until after it is processed.
CBP has previously found that for waste being imported to be disposed of, for which a fee was paid to a U.S. company responsible for disposing of the waste, the fee being paid for disposal was an appropriate value for the waste. See Headquarters Letter Ruling (HQ) 545017, dated August 19, 1994. 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 of 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 HRL 547147, Waste Management, Inc. (WMI) was importing solid waste into the U.S. for disposal, and attempted to distinguish HRL 545017. WMI argued that the waste itself had no value, and that the fee was paid for disposal of 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.” See also HQ 547147 dated March 23, 1999. Similarly, in HQ H019073, soil contaminated with depleted uranium was being 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.
However, in HQ H055410 dated January 11, 2010, CBP considered the valuation of silver nitrate crystal in a solid block form in the shape of the container in which it was held. The consistency of the product was claimed to render it damaged with no market in the United States without further processing. The merchandise was be processed for the recovery of the precious metal (silver). Additionally, the importer intended to manufacture a new product silver oxide from the imported sliver nitrate. We ruled that since the value of the imported silver nitrate could not be determined on the basis of a method derived from sections 402(b)-(e), the product’s value could be determined using all other reasonable ways and means under 402(f) of the TAA. Therefore, we held that the silver nitrate should be appraised on the basis of the intrinsic silver value, determined in accordance with the NY Spot price of silver on April 28, 2008, plus the cost of production of silver nitrate in the United Kingdom. However, since silver nitrate was imported in defective form, we further held that the cost of recovery of silver in the United States could be deducted from the value of the merchandise.
We believe that the circumstances of this case are similar to HQ H055410, because there is no sale for exportation, and the imported scrap material has no commercial value at the time it is imported into the U.S. The value of the precious metals is the result of the operations performed in U.S. to remove them from the imported scrap material. Therefore, we conclude that the imported scrap material should be valued using the fallback method based on the value of the precious metal obtained after the processing is performed in United States as determined by its price on a metals market, such as the New York Mercantile Exchange, on the day of entry multiplied by the weight of precious metal obtained as shown in the final settlement between Sabin and its customer. In addition, in the determining the final Customs value of the scrap material, the processing fee that Sabin charges it customers for recovering the precious metals from the imported scrap material may be deducted from the value of precious metal. In rare instances where the cost of processing the scrap materials exceeds the value of the precious metals obtained, we conclude that because the imported merchandise has no real commercial value at the time it is imported, the imported scrap material should be appraised based on the cost of the fees that Sabin charges its customer to do the processing to recover the precious metal. See HQ H130310, dated November 18, 2010.
If the applicable information regarding the processing fee on the scrap is not available at the time the scrap materials are entered into the U.S., the importer may file a reconciliation entry. Reconciliation is a process that allows an importer to identify undeterminable information (other than that affecting admissibility) to CBP, and provide the outstanding information at a later date. Modification and Clarification of Procedures of the National Customs Automation Program Test Regarding Reconciliation, 67 Fed. Reg. 61,200, 61,201 (Sept. 27, 2002). Importers notify CBP that an entry summary is subject to Reconciliation by flagging the entry summary for Reconciliation. The flagged entry summary is liquidated for all aspects of the entry except those issues that were flagged. The means of providing the outstanding information at a later date relative to the flagged issues is through the filing of a reconciliation entry.
HOLDING:
The imported scrap materials shall be appraised under the fallback method based on the price of the precious metal contained in the imported scrap material as determined on the New York Mercantile Metal Exchange on the day of entry minus the cost of the processing fee paid by Sabin’s customers to recover the precious metals from the scrap materials. If the value of the precious metal obtained is less than the cost of the processing fee, the imported scrap material should be appraised based on the cost of the fees that Sabin charges its customer to do the processing.
This decision should be mailed by your office to the party requesting Internal Advice no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to CPB personnel, and to the public on the CPB Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Please do not hesitate to contact us at (202) 325-0132 if you have any questions or concerns.
Sincerely,
Monika R. Brenner
Chief, Valuation and Special Programs Branch