OT:RR:CTF:VS H283855 EE
John Landry
DLA Piper (Canada) LLP
Suite 2800, Park Place
666 Burrard Street
Vancouver BC V6C 2Z7
RE: Appraisement of certain grades of lumber imported into the United States from Canada
Dear Mr. Landry:
This is in response to your letter, dated February 20, 2017, on behalf of your client, [X] (the “importer”), concerning the appraisement of certain grades of lumber imported into the United States from Canada.
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 C.F.R. § 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets and all attachments to this ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
The importer is a Canadian lumber company focused on the production, sales, and distribution of appearance grade one-inch Engelmann Spruce/Lodgepole Pine (“ESLP”) boards. The boards sold by the importer throughout the world are of high quality non-structural lumber. Although there are numerous species grown in [X] (“Canada”), the importer only focuses on two to produce ESLP boards: Engelmann Spruce (“ES”) and Lodgepole Pine (“LPP”), and of these species the importer is only interested in the higher quality ES and LPP fiber given the appearance nature of their end product.
You state that the importer has been manufacturing appearance grade one-inch ESLP boards for many decades at their plant located in [X] Canada. This plant is specifically designed and engineered to produce 100% one-inch boards. In order to manufacture appearance grade one-inch ESLP boards, high quality logs with minimum defects are required. To achieve this result, the importer has to sort and separate out from the logs that are harvested, all other species and lower quality LPP and ES. The high quality logs are then cut into various lengths of one-inch rough green lumber, which is then manufactured into the one-inch appearance grade ESLP boards. Although the majority of the one-inch appearance ESLP boards manufactured at the importer’s Canadian facility are sold into the Canadian and overseas markets, some are shipped to the United States.
Since 2004, instead of manufacturing the rough green lumber into one-inch appearance ESLP boards at its Canadian mill for the U.S. market, the importer has been shipping rough green lumber of various widths to [X] (“its wholly owned subsidiary”), located in [X] the United States, to be manufactured into the same appearance grade one-inch ESLP boards manufactured at the importer’s Canadian facility.
In order to meet customers' demand in the United States for one-inch appearance ESLP boards, the importer also purchases a significant volume of similar high quality rough green lumber from a number of unrelated sawmills in Canada at negotiated prices that are set on a monthly basis. These unrelated Canadian companies operate sawmills that are dedicated to producing structural lumber for new home construction. Because their focus is on producing structural lumber, these sawmills have been designed and engineered to cut the logs to a two-inch thickness, as required by the North American building codes.
Although these unrelated sawmill companies are not able to cut logs into one-inch thickness rough green lumber, they have agreed, for a premium price paid by the importer, to use their high quality ES and LPP logs for cutting two-inch thick rough lumber that has the same or better attributes as the one-inch rough green lumber that the importer cuts in its Canadian sawmill. To meet this purchase requirement from the importer, these unrelated sawmills are required to remove or separate out any lower quality log species before cutting the two-inch thick lumber products sold to the importer. This ensures that the importer has only the higher quality ES and LPP fiber lumber for all of their production needs. The prices for this lumber from unrelated sawmills are quoted in dollars per [X].
The importer states that as a result, the fiber species and fiber quality of the one-inch rough green lumber that the importer produces in its Canadian sawmill are identical to fiber species and fiber quality of the two-inch rough green lumber that the importer procures from the unrelated Canadian sawmills except that the lumber purchased from the unrelated sawmills is two-inch thick due to their technical incapability to cut one-inch logs. However, the prices are not tied to inch thickness, but rather correspond only to the total board feet of the lumber. In addition, because of the volume of logs used in the unrelated sawmills, their highest quality logs sometimes surpass the quality of logs used by the importer, and, therefore, the visual quality of the fiber of the lumber is often better than the rough green lumber produced by the importer.
The two-inch rough green lumber purchased by the importer from the unrelated sawmills is shipped by the importer directly to the United States. Once in the United States, the two-inch rough green lumber is simply run through a saw line once to make two pieces of one-inch rough green lumber. You state that this is a very easy, quick, and inexpensive process. This one-inch rough green lumber then goes through the same manufacturing process to produce the appearance grade one-inch ESLP boards that is applied to the one-inch rough green lumber shipped from the importer’s Canadian facility. Specifically, at the U.S. facility all one-inch rough green lumber is manufactured into appearance grade one-inch ESLP boards as follows:
• The lumber is dried in a kiln to remove the moisture from the fiber, making it stable for its end applications.
• Once kiln dried, the lumber is then processed through a world-class moulder to generate a smooth and consistent sizing. Defects are also removed which results in trim-end pieces.
• The boards are graded to align with customer requirements, fiber and finishing defects.
• Some of the graded boards are upgraded to pattern products by reprocessing the lumber through another moulder to apply specific features for the end use application (e.g. tongue and grove lumber).
• Trim-ends from the moulders are collected, defects are removed, the pieces are finger-jointed and sometimes edge glued into longer length appearance grade boards.
You state that both the one-inch rough green lumber (coming from the importer’s Canadian facility) and the two-inch rough green lumber (purchased by the importer for export from unrelated Canadian sawmills) are classified and entered under subheading 4407.10.0115, Harmonized Tariff Schedule of the United States (“HTSUS”).
ISSUE:
What is the correct method of appraisement of the one-inch rough green lumber imported into the United States?
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 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). If, for any reason, sufficient information is not available with respect to the additions to the price actually paid or payable, the transaction value of the imported merchandise is treated as one that cannot be determined. 19 U.S.C. § 1401a(b)(1).
The term “price actually paid or payable” is defined as:
[T]he total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.
19 U.S.C. § 1401a(b)(4)(A).
In the instant case, the imported one-inch rough green lumber is not the subject of a sale and therefore cannot be appraised under the transaction value method set forth in 19 U.S.C. § 1401a(b). 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 the following sequential order: 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 the “fallback method.” 19 U.S.C. § 1401a(f).
19 U.S.C. § 1401a(c) provides that:
(1) The transaction value of identical merchandise, or of similar merchandise, is the transaction value (acceptable as the appraised value for purposes of this chapter under subsection (b) but adjusted under paragraph (2) of this subsection) of imported merchandise that is—
(A) with respect to the merchandise being appraised, either identical merchandise or similar merchandise, as the case may be; and
(B) exported to the United States at or about the time that the merchandise being appraised is exported to the United States.
(2) Transaction values determined under this subsection shall be based on sales of identical merchandise or similar merchandise, as the case may be, at the same commercial level and in substantially the same quantity as the sales of the merchandise being appraised. If no such sale is found, sales of identical merchandise or similar merchandise at either a different commercial level or in different quantities, or both, shall be used, but adjusted to take account of any such difference. Any adjustment made under this paragraph shall be based on sufficient information. If in applying this paragraph with respect to any imported merchandise, two or more transaction values for identical merchandise, or for similar merchandise, are determined, such imported merchandise shall be appraised on the basis of the lower or lowest of such values.
19 U.S.C. § 1401a(c). To use this method of appraisement, the transaction value of the identical or similar merchandise must be a previously accepted value; that is, it must be demonstrated that the transaction value is fully acceptable under 19 U.S.C. § 1401a(b) at the time of appraisement of the merchandise under consideration in order to be applied as the transaction value of identical or similar goods under 19 U.S.C. § 1401a(c). See T.D. 91-15, 25 Cust. Bull. 31 (1991); and HQ H234029 dated April 22, 2013. See also HQ H157795, dated June 29, 2015. As explained in T.D. 91-15, the previously accepted value is determined on the basis of information provided by the importer or already available to U.S. Customs and Border Protection (“CBP”). See HQ H257520, dated January 16, 2015. You identify the two-inch rough green lumber purchased from unrelated sawmills as previously accepted values of similar merchandise. Therefore, provided CBP has previously accepted values of similar merchandise, that satisfy all of the requirements of transaction value, this prerequisite to the application of transaction value of similar merchandise is satisfied.
You state that the importer is not aware of any other sources of one-inch rough green lumber being sold for exportation to the United States. Therefore, to the extent that such information is not available, the imported one-inch rough green lumber cannot be appraised using transaction value of identical merchandise.
19 U.S.C. § 1401a(g)(4) provides, in relevant part, that “‘similar merchandise’’ means:
(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 under 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).
19 U.S.C. § 1401a(g)(4). Further, concerning “similar merchandise”, 19 C.F.R. § 152.104(c) provides “[t]he quality of the merchandise, its reputation, and the existence of a trademark will be factors considered to determine whether merchandise is “similar”.
You state that the two-inch rough green lumber, exported at or around the same time as the merchandise being appraised, the one-inch rough green lumber, meets the definition of similar merchandise under 19 U.S.C. § 1401a(g)(4). We disagree. You claim that both the two-inch and the one-inch rough green lumber are produced in Canada and have the same characteristics and component material as they are from the same fiber species and fiber quality (high-end ESLP). You indicate that the only difference between the two-inch and the one-inch rough green lumber is the thickness of the cut. While the two-inch rough green lumber may be like the one-inch rough green lumber in characteristics and component material, we do not find the two-inch rough green lumber that needs to be further processed after the importation to be commercially interchangeable to the one-inch rough green lumber imported by a Canadian lumber company.
Pursuant to 19 U.S.C. § 1401a(a)(2), if the value cannot be determined on the basis of the transaction value of identical or similar merchandise, the merchandise shall be appraised on the basis of the computed value, rather than the deductive value, if the importer makes a request to that effect to the customs officer concerned. See also 19 C.F.R § 152.101(c). In this case, the importer argues that the merchandise should be appraised under the computed value method of appraisement.
19 U.S.C. § 1401a(e) provides that:
(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 profit 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.
19 U.S.C. § 1401a(e). The Statement of Administrative Action (“SAA”), adopted by Congress with the passage of the TAA, provides that with respect to computed value:
The cost or value of the materials and the fabrication and other processing of any kind employed in the production of the imported merchandise will be determined on the basis of information supplied by, or on behalf of, the producer and will be based upon the commercial accounts of the producer, if such accounts are consistent with the generally accepted accounting principles applied in the country where the goods are produced. The “amount for profit and general expenses” will be determined on the basis of information supplied by, or on behalf of, the producer and will be based upon the commercial accounts of the producer, provided that such accounts are consistent with the generally accepted accounting principles applied in the country where the goods are produced and unless the figures provided 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.
Statement of Administrative Action, H.R. Doc. No. 153, Pt. II, 96th Cong., 1st Sess. (1979), reprinted in Department of the Treasury, Customs Valuation under the Trade Agreements Act of 1979 (1981).
The importer proposes to calculate the computed value of the one-inch rough green lumber by taking the sum of the prices at which the importer purchases the two-inch cut rough green from unrelated sawmills in Canada, importer’s general expenses, profit, and packing costs. As previously noted, pursuant to 19 U.S.C. § 1401a(e)(1)(A), the computed value of the imported merchandise is the sum of “the cost or value of the materials and the fabrication and other processing of any kind employed in the production of the imported merchandise.” (Emphasis added). As such, the importer must use the actual cost of the one-inch rough green lumber based on the commercial accounts of the producer, which is the importer in this case, if such accounts are consistent with the generally accepted accounting principles applied in the country where the goods are produced.
HOLDING:
The imported one-inch rough green lumber should be appraised based on the computed value of merchandise under 19 U.S.C. § 1401a(e) using the cost of the one-inch rough green lumber, provided the importer is prepared to present CBP with documentation to support appraisement under this method. The documentation is also subject to any verification deemed necessary in accordance with 19 C.F.R. § 141.88 and 19 C.F.R. § 177.9(b)(1).
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.”
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,
Yuliya A. Gulis, Acting Chief
Valuation & Special Programs Branch