VAL-OT:RR:CTF:VS H287885 ABH
Robert L. Bekalarski
Assistant Center Director Enforcement
Industrial & Manufacturing Materials
Center of Excellence and Expertise (IMM CEE)
U.S. Customs and Border Protection
726 Exchange Street, Suite 400 Buffalo, NY 14210
RE: Internal Advice; IAMGOLD Purchasing Services, Inc.; Fallback Method; 19 U.S.C. § 1401a(f); Modified Transaction Value
Dear Mr. Bekalarski:
This is in response to your memorandum dated February 21, 2017, concerning the request for internal advice on the proper valuation of spent carbon fines that were imported into the United States.
FACTS:
On May 16, 2014, IAMGOLD Purchasing Services, Inc. (“IAMGOLD”), imported a product known as spent carbon fines (from a related party in Suriname called Rosebel Gold Mines N.V. (“Rosebel”)) through the Port of Houston, Texas. IAMGOLD stated that it no longer imports the carbon fines. The carbon fines are a by-product of the gold recovery process known as the Carbon-In-Leach (“CIL”) process which was performed in Suriname. Particles of gold, silver, and other precious metals (hereinafter “precious metals”) are absorbed into the pores of the carbon fines during this chemical process. The carbon fines are granular in size and are comparable to grains of sand. The particles of precious metals absorbed by the fines are even smaller than the carbon fine and are not visible to the naked eye. The molecules of precious metals accumulate in the microscopic pores of the carbon fines forming a molecular powder. IAMGOLD likened the pores in the carbon to microscopic parking lots, and the molecules of precious metals as cars parking in the pores until the parking lot is full.
The carbon fines are imported in bags, each typically weighing 1,100 to 3,300 pounds. The amount of precious metals contained in a bag of carbon fines varies. IAMGOLD states that a typical 2,200 pound bag of spent carbon fines usually contains anywhere between 5 to 50 troy ounces of recoverable gold. The entire entered value of the imported carbon fines is attributable to the particles of precious metals contained in the carbon fines and not totally from the carbon fines, which are of no value without the particles of precious metals.
Prior to an audit conducted by U.S. Customs and Border Protection (“CBP”) Regulatory Audit (“RA”) on September 15, 2015, IAMGOLD declared the value to CBP at the time of entry on the CBP Form 7501 Entry Summary as the value shown on the invoice prepared by Rosebel. Rosebel arrived at its invoice value for the imported carbon fines by taking a small sample from each carbon fine bag and performing an assay (i.e., taking a sample) at its laboratory to estimate the amount of precious metals the smelter would likely recover from the bag at a later date. In other words, the invoice value was an estimate based on Rosebel’s actual past experience in calculating and estimating the amount of precious metals it would recover measured in troy ounces. Using the lab results to obtain the amount of precious metal in the carbon fine bags, Rosebel arrived at an invoice value for the imported carbon fines by multiplying the estimated troy ounce amount with the price of the precious metals on the London Metals Exchange on the date of the invoice, which was earlier than the date of entry into the United States.
With regard to the entries at issue in the audit (the period January 1, 2013 through December 31, 2014), IAMGOLD acted as the importer of record in the transaction. Although IAMGOLD stated that the ultimate consignee and purchaser of the gold is an unrelated third party, SIPI Metals Corporation (“SIPI”), located in Chicago, IL, SIPI was not indicated as the ultimate consignee on the entry documents. After the carbon fines were entered, IAMGOLD trucked the merchandise to SIPI. Upon arrival at the SIPI facility, SIPI performed its own assay. Depending on the results of SIPI’s assay, and in accordance with the terms of the contract between IAMGOLD and SIPI, the parties would agree upon a final recovered amount of precious metal. This would then be reflected in a Precious Metal Settlement Report issued by SIPI. If IAMGOLD and SIPI could not agree, the parties used a third party “umpire” to determine the final amount of recovered precious metals.
RA determined that IAMGOLD did not declare the correct value for the imported merchandise because they used estimated values at the time of entry based on the expected weight of precious metals (in ounces) times the market price of the precious metals. Additionally, RA determined that IAMGOLD did not use the proper basis of appraisement to appraise its carbon fines at the time of entry. RA concluded that the proper method for valuation would be the utilization of CBP’s reconciliation program. RA instructed IAMGOLD to provide a methodology for valuation based upon the fallback method and stated that it would submit an internal advice to the Office of Trade, Regulations and Rulings, to determine if the fallback method of valuation proposed by IAMGOLD was acceptable.
On December 16, 2015, IAMGOLD submitted a request for internal advice on the methodology of valuation for the spent carbon fines. CBP had previously resolved the other issues regarding classification, GSP eligibility, and duties owed.
The only issue to be determined is the correct valuation methodology. In the December 16, 2015, request for internal advice, IAMGOLD references two CBP Headquarters rulings, HQ H056445 (July 27, 2009) and HQ H251593 (Oct. 9, 2014), to support the use of the fallback valuation methodology. IAMGOLD has proposed using a valuation methodology based on the price of the precious metals contained in the imported carbon fines as determined on the London Metals Exchange on the date of entry, minus processing fees charged to recover precious metals from the carbon fines.
Your office agrees that the rulings cited by IAMGOLD support the use of the fallback valuation methodology for importations of merchandise similar to that at issue in this case with the exception of one issue. You state that the processing fees should not be deducted because the importation of the spent carbon fines was not a sale, but rather a transfer or movement of the product by a related party from its country of origin to the United States. You reference HQ H133039 (Feb. 25, 2011), and indicate that the key distinguishing factor is that the imports were between unrelated parties and there was a valuation methodology in effect at the time of importation to determine the price. Once imported, and if the parties agreed upon the negotiated price, it would result in a sale or transfer of ownership. You note that in this case, there is no formula for valuation between the related parties at the time of importation. Therefore, there is only the physical transfer or movement of the spent carbon fines from one country to the United States. IAMGOLD states that SIPI should be considered the ultimate consignee, but your office notes that SIPI is not listed as the ultimate consignee on the CBP Form 7501. It is your opinion that if the importer of record had been SIPI, then the deduction for processing fees would be appropriate based on the rulings cited by IAMGOLD.
ISSUE:
What is the correct method of appraising the imported carbon fines?
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”), codified in 19 U.S.C. § 1401a. 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. 19 U.S.C. § 1401a(c)-(e). 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 this case, the carbon fines cannot be appraised on the basis of transaction value. 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. 19 U.S.C. § 1401a(b); HQ H256779 (Jan. 20, 2016) (noting that “[i]n order for transaction value to be used as a method of appraisement, there must be a bona fide sale between the buyer and the seller,” which means that there must be a “transfer of title from one party to another for consideration”) (citing VWP of Am., Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999)).
In the instant case, the carbon fines were not the subject of a bona fide sale between a buyer and seller for exportation to the United States because IAMGOLD, the importer, did not purchase the carbon fines. As discussed above, IAMGOLD acted as the importer of record and transported the carbon fines to SIPI. IAMGOLD stated that it acted merely as a “trading hub for its parent company” and did not have a contractual relationship with Rosebel vis-à-vis the carbon fines. Further, the value of the imported merchandise was the result of the refining operations performed in the United States to extract the gold from the carbon fines. As discussed above, upon completion of the refining process, SIPI issues a Precious Metals Settlement report listing the actual quantity of gold and the market rate of gold based on the date of settlement. Accordingly, the carbon fines 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 are also inapplicable in the present circumstances. Pursuant to section 402(c) 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). We would assume that there is no merchandise similar or identical to the imported carbon fines. Accordingly, the merchandise cannot be appraised on the basis of the transaction value of similar or identical merchandise.
Pursuant to section 402(d) of the TAA, 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. § 1401(d)(2)(A)(i)-(ii). This price is also subject to certain enumerated deductions. 19 U.S.C. § 1401a(d)(3). In this case, however, the carbon fines are not sold in their 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, the importer has not to our knowledge elected this method. Further, the method is not normally applicable when as the result of further processing, imported merchandise loses its identity unless the value added by the processing can be determined accurately without unreasonable burden on the importer or CBP. 19 C.F.R. § 152.105(i)(2). As a result, the carbon fines cannot be appraised on the basis of the deductive value method.
Pursuant to section 402(e) of the TAA, 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 of appraisement is also inapplicable.
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. There are certain prohibited bases of appraisement under section 402(f), however, 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:
[f]ix 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 carbon fines may be determined under the fallback method on the basis of transaction value reasonably adjusted to the extent necessary as provided for in section 402(f) of the TAA. CBP has previously found that for imported scrap material the fallback method should be used because there was no commercial value of the imported scrap material at the time it was imported into the United States. HQ H251593 (Oct. 9, 2014). In that case, we concluded that the imported scrap material should be valued using the fallback method based on the value of the precious metal obtained after processing to remove it was performed in the United States as determined by its price on a metals market on the day of entry multiplied by the weight of the precious metal obtained as shown in the final settlement between the importer (and processor) and its customer. Id. We also determined that the processing fee that the importer/processor charged its customers for recovering the precious metals from the imported scrap material was allowed to be deducted from the value of the precious metal. Id.
The circumstances of this case are similar to HQ H251593 because there is no sale for exportation and the imported carbon fines have no commercial value at the time they are imported into the United States. The value of the imported merchandise is the result of the operations performed in the United States to remove the precious metals from the imported carbon fines. Therefore, we conclude that the imported carbon fines 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 on the date of entry multiplied by the weight of precious metal obtained as shown in the Precious Metals Settlement Report between SIPI and Rosebel.
In addition, in determining the final Customs value of the carbon fines, the processing fee that SIPI charges for recovering the precious metals from the imported carbon fines may be deducted from the value. Your office asserts that such processing fees should not be deducted from the value because there was not a valuation methodology in effect between IAMGOLD and Rosebel at the time of importation, which differentiates this case from rulings such as HQ H251593. It is your opinion that if the importer of record had been SIPI, then the deduction for processing fees would be appropriate based on rulings such as HQ H251593. You reference ruling HQ H133039 (Feb. 25, 2011), and indicate that the key distinguishing factor is that the importer of record was an unrelated party, and there was a valuation methodology in effect at the time of import to determine the price.
In HQ H133039, the importer and seller decided upfront that the price of the scrap gold would be a percentage of the “spot price” of the gold in effect on the date the importer performed the weigh and scratch tests. On that day, the importer would call the seller and quote a new price based on the results of the weigh and scratch tests. If the seller accepted the final price, the importer would send the merchandise to a refining company that issued a refining statement indicating the actual metal content of the scrap gold and the amount it intended to pay for the specific lot at issue. Once the importer received the refining statement it wired payment to the seller. In HQ 133039, we determined that transaction value was acceptable because the price actually paid or payable could be arrived at by the application of a formula, such that a final price could be determined at a later time on the basis of some future event or occurrence over which neither the seller nor the buyer had any control. 19 C.F.R. § 152.103(a)(1). We noted that the spot price initially quoted before exportation should be the value included on CBP entry documentation. We recognized that the price of gold fluctuates daily and that the gold content would possibly differ from the amount initially indicated by the seller after it was tested, thereby changing the value of the merchandise. In that event, we noted that the value of the merchandise must be revised, and the information declared to CBP in a timely manner.
The facts of HQ H133039 do not persuade us that the processing fees should be treated differently in this case. As discussed above, transaction value is not appropriate because there is no bona fide sale and there is no sale for exportation to the United States. The fallback valuation methodology, however, requires us to fix the final appraisement of merchandise by ascertaining the value by all reasonable ways and means. There is nothing in HQ H133039 to suggest that because we are using the fallback valuation methodology the processing fees should not be deducted from appraisement. In fact, in a fallback valuation methodology case, HQ H251593, processing fees were allowed to be deducted from the appraised value of the imported merchandise.
Further, IAMGOLD provided the terms of a contract that provided for a valuation methodology in effect at the time of importation between IAMGOLD and SIPI for a portion of the time period relevant to the audit. The audit covered the period of January 1, 2013 through December 31, 2014, and the contract covered shipments made between February 1, 2013 and January 31, 2014. The contract sets the valuation methodology as “[c]redit gold at 97.0% of recoverable content at London 2nd Fix less $5.00 per troy ounce” and “[c]redit silver at 95.0% of recoverable content at New York Comex spot close less $.050 per troy ounce.” The pricing was to be determined “on the fourth Wednesday following date of receipt of material, or date of sampling completion should representation be utilized.” Thus, there was a valuation methodology in effect at the time of importation to determine the price. As such, we are unable to determine a meaningful distinction between this case and HQ H251593. Accordingly, we find the processing fee SIPI charges for recovering the precious metals from the imported carbon fines may be deducted from the appraised value of the imported merchandise.
In this case, we recognize that appraising the carbon fines at the time of importation raises unique difficulties because IAMGOLD 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 will be charged for processing until after it is processed. If IAMGOLD chooses to resume importation of carbon fines into the United States and the applicable information regarding the recoverable content and the processing fees on the carbon fines are not available at the time the carbon fines are entered into the United States, then IAMGOLD may file a reconciliation entry. Reconciliation is a process that allows an importer to identify undeterminable information (other than that affecting admissibility) to CBP, such as value, and provide the outstanding information at a later date. See Modification of the National Customs Automation Program Test Regarding Reconciliation and Transition of the Test From the Automated Commercial System to the Automated Commercial Environment, 81 Fed. Reg. 89,486 (Dec. 12, 2016). 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 carbon fines shall be appraised under the fallback method based on the price of the precious metals contained in the imported carbon fines as determined on the London Metals Exchange on the date of entry multiplied by the weight of the precious metals obtained as shown in the Precious Metals Settlement Report issued by SIPI, minus the cost of the processing fees charged by SIPI to recover the precious metals from the carbon fines.
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