OT:RR:CTF:VS H332371 ACC
Kirti Jadeja, Senior Manager
Kristine Dozier, Partner
Deloitte Tax LLP, Global Tax Advisory
555 Mission St.
San Francisco, California
RE: Clinical Trial Stage Pharmaceutical Products and Materials; Fallback Method
Dear Ms. Jadeja, Ms. Dozier:
This is in response to your request for a ruling, dated May 15, 2023, on behalf of your company, [X] ("Company A"), part of the pharmaceutical group in the [X] ("Company B") family of companies, regarding the proper appraisement of certain clinical trial stage pharmaceutical products and materials.
The importer has asked that certain information submitted in connection with this ruling 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 in italics in this ruling or in the attachments to the ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
Company A [X] is a large global, research-driven pharmaceutical company that engages in the development, clinical trial testing, manufacture, and commercial distribution of pharmaceutical products. Company A [X] also administers clinical trials in the United States for related Company A [X] pharmaceutical companies that are engaged in the development of different pharmaceutical drugs pursuant to service agreements.
Company A [X] states that drug development is an extensive process that includes various stages including research and development, clinical trial testing and finally, achieving government regulatory approval for the commercial sale of a drug in a local market. Company A [X]'s drug development involves the following products, which are the subject of this ruling request:
Clinical Active Pharmaceutical Ingredients ("API"): API is the key component in pharmaceutical drugs. The Food and Drug Administration ("FDA") defines it as the substance incorporated in a finished drug which furnishes pharmacological activity or other direct effect in the diagnosis, cure, mitigation, treatment, or prevention of disease, or to affect the structure or any function of the body. API formulation is a significant factor in the drug development process and determines to a large extent whether it will progress to win regulatory approval. Company A [X] produces and imports API or drug substance in sample and bulk form for development testing and/or further manufacture into finished drugs. API does not include excipients that will be used to make finished drugs. Excipients are substances added to an API to, for example, facilitate drug absorption, reduce viscosity, enhance solubility, or support long-term stabilization, bulk up solid formulations, prevent denaturing or improve shelf-life.
Clinical Drug Products ("DP"): DP is produced by combining API with excipients. Compared to FDP, DP may not be in dosage form at the time of import for administration to patients or may not have undergone final packaging/labelling into the form that will reach the end patient as the finished drug.
Clinical Finished Drug Products ("FDP"): FDP is DP that is formulated in dosage form, with final packaging and labelling in the form in which it will be provided to a patient.
Comparators: Comparators are products produced by other drug companies that target similar disease indications and are purchased and included in clinical trials for comparison testing purposes. Comparators may be included in clinical trials in their original form which identifies what they are or could be subject to processing by Company A [X] to hide their identity. This additional processing may take the form of adding a simple label that states, "for clinical trial", over-encapsulation or over-labelling of original labels and additional packaging.
Company A [X] engages in clinical trials as part of their drug development process to test the therapeutic benefit of investigational drugs against specific disease indications in target patient groups. As part of this effort, "Company A [X] imports clinical stage API, DP, and comparators for use in manufacturing clinical drugs and trial kits to support clinical trials as well as FDP in finished form for use in ongoing active trials where it or a related Company A [X] pharmaceutical company is the sponsor." This ruling specifically involves the following clinical trial stage pharmaceutical products: (1) Clinical stage API, whether imported in bulk or as samples; (2) Clinical stage DP, whether imported in bulk or as samples; (3) FDP for clinical trial; and (4) Comparators. The above-mentioned products are involved in Phase I to Phase IV of clinical trial stages (i.e., before commercial approval and launch) in the drug development process.
A. Company A [X]'s Clinical Product Supply Chain and Financial Accounting for Pharmaceutical Products Involved in Clinical Trials
The clinical FDP, DP, and API in question are produced at internal Company B [X]-owned manufacturing sites globally and, increasingly, by external third-party manufacturers (also known as "assemblers") who perform work under long-term Service Level Agreements ("SLAs") and other contracts in several countries. Under these SLAs, Company B [X] companies contract external third parties for services to manufacture their products, but the specific Company B [X] companies retain ownership of the products and the third-party manufacturers have no interest in the product other than as the assembler.
For clinical products produced at internal Company B [X]-owned manufacturing sites, the production and trial costs are recorded or expensed to project and cost centers in financial records by project code, clinical study, or other designation in a variety of Company A [X] financial enterprise resource planning ("ERP") systems. Production costs will vary and are typically not inventoried because products are going through continuous changes during the testing process. According to Company A [X], this means "standard costs" of production are not readily available and it would be operationally complex to track the volume of output of individual batches to costs for clinical products because of variability, commingling, and [X] of Company A [X]'s global supply chain.
For clinical products manufactured by external third-party manufacturers or assemblers, the manufacturing invoices are booked to targeted external cost centers and can be readily traced in reports in several ways, including by vendor, product category (e.g., large, or small molecule-based drugs, gene therapy drug products, vaccine-based drug products), and drug stage (e.g., API, DP, FDP). Invoices from these external third-party assemblers will include transport costs if they move their production output to another processing site but will not include costs, of materials or API, or DP, etc. if these are provided free of charge by [X]. These external third-party assemblers typically source their own raw materials, supplies, and equipment to produce products and invoice Company A [X] companies for their service fees to manufacture specific volumes of output or as agreed. As Company A [X] explains, charges related to tracing services for externally manufactured products are more readily available because product acquisition and assemblers service billing is done in a more standardized way.
C. Company A [X]'s Proposed Valuation Methodologies
1. Clinical FDP, DP, and API
The clinical FDP, DP, API at issue will not be sold after importation. Instead, Company A [X] will use clinical FDP and DP in manufacturing clinical drugs and trial kits to support clinical trials as well as FDP in finished form for the use in ongoing active trials. The clinical FDP, DP, and API are either (1) products which already have commercial approval to treat one or more disease indications other than the one for which they are now being tested, i.e., testing for new uses, or (2) products that do not yet have any commercial stage approvals in the market. Company A [X] proposes a different valuation method for each category of clinical FDP, DP, and API mentioned above.
a. Clinical FDP, DP, and API lacking any approval for commercial sale to treat any disease indication and commercial prices are not available.
Company A [X] will import FDP, DP, and API for clinical trial manufacturing and testing for drugs that lack any intercompany price for a product because it has not achieved regulatory approval for commercial sale to treat any disease indication. For such products, Company A [X] proposes to use (1) fallback method using modified transaction value; or (2) modified computed value. Under either approach, Company A [X] would calculate the customs value based on the average per unit price it was invoiced (i.e., acquisition cost) in a prior year by external third-party assemblers that manufactured products for Company A [X] under the terms of contracts and SLAs. The information used will be from Company A [X]'s audited financial systems.
To appraise these products, Company A [X]'s business teams will identify the relevant cost centers that capture the external service invoice costs charged to Company A [X]'s companies. This information would be derived from Company A [X]'s audited financial systems which are maintained in accordance with Generally Accepted Accounting Principles ("GAAP")[1] as defined by 19 U.S.C. 1401a(g)(3). Company A [X]'s Financial Teams will run financial reports on these identified costs centers for the prior year to identify relevant third-party manufacturer invoices and calculate an average per unit acquisition price for production services on an aggregate weighted average basis. The average per unit cost would be calculated for each product category (e.g., small-molecule drugs, gene therapy products, vaccine-based drug) by stage, project, or campaign at a unit level.) and Company A [X] will update the customs value annually for each product category.
Specifically, Company A [X] proposes to add: (1) an average cost per unit based on the average actual per unit price charged by unrelated third-party assemblers to manufacture each product category and stage of product during the prior year globally; (2) assist values, as they apply, including for materials and components provided to assemblers such as API, DP, and the costs incurred to transport those products to manufacturing production sites, during that given year; and (3) actual or average commercially available market prices of packaging, if required to prepare the product for shipment to the United States. .
In situations where the third-party assemblers do not source their own materials to manufacture the pharmaceuticals, Company A [X] will provide the third-party assemblers with assists in the form of its key compounds, such as API provided to DP Manufactures and DP provided to FDP assemblers that perform final packaging/labelling services. Company A [X] will add the amount of these assists to the clinical product customs value. Company A [X] will determine the value of assists that are key compounds in two ways. In general, Company A [X] will base the value on the average prior year acquisition cost to produce the relevant assists (e.g., API) based on the actual invoices charged by assemblers as recorded in Company A [X]'s financial Systems. However, if the actual invoice cost from a single assembler/manufacturer is available to value the key compound assists, Company A [X] may use that cost to value the assists. To determine the cost to transport assists to the next production site, Company A [X] will use (1) assembler invoices when available; or (2) add an amount to transport assists to manufacturing sites using transportation costs booked to relevant costs centers for the shipping lane, when assembler invoices are not available.
For goods that require additional packaging to prepare the product for shipment to the United States, Company A [X] will (1) add the actual costs for the acquired packaging when available; or (2) if actual cost is not available, use the average commercially available price for standard packaging taken from Company A [X]'s supplier catalogues, as determined on an annual basis.
b. Clinical FDP, DP, and API with approval for commercial sale to treat at least one disease indication and commercial prices are available.
Company A [X] will also import FDP, DP, and API for clinical trial manufacturing and testing for drugs that already have regulatory approval for commercial sale to treat a different disease indication. For such products, Company A [X] maintains pre-existing global sale price lists for both intercompany and customer sales for the commercial drug and imports those shipments based on commercial sale transactions. Company A [X] typically declares intercompany prices for commercial imports.
For these clinical FDP, DP, and API with approval for commercial sale to treat at least one disease indication and commercial prices available, Company A [X] proposes to use (1) the transaction value of identical or similar merchandise, pursuant to 19 C.F.R. 152.104 when commercial products are imported at or about the same time and from the same country of export as the clinical DFP, DP, or API being appraised; or (2) the fallback method using modified transaction value of identical or similar merchandise, pursuant to 19 C.F.R. 152.107 when commercial products are not being imported at or about the same time or are not being imported from the same country of export as the clinical FDP, DP, or API being appraised. Specifically, Company A [X] proposes to add (1) the intercompany price for the commercial FDP, DP, and API when sold for export to the United States; and (2) an amount for additional packaging if required for transportation to the United States.
The additional packaging includes vials, bottles, boxes, etc. when Company A [X] will use the shipping site's actual cost to acquire the packaging used to calculate the amount for packaging when available. If not available, Company A [X] will use the average commercially available market price for the identified packaging based on the type and size that teams routinely used, taken from Company A [X]'s standard third-party supplier pricing catalogues. Company A [X] will categorize teams' standard packaging requirements on an annual basis and use that to determine a per unit price viable on the market for such packaging to identify relevant and applicable prices. Company A [X] will refresh these packaging prices routinely and make them available to shipping teams on internal resource sites for traceability.
2. Comparators
Comparators are drugs produced by other companies that are used for comparison purposes against Company A [X]'s investigational drugs in clinical trials. Comparators are acquired by Company A [X] companies from third party vendors. Company A [X] uses comparators (1) in the condition in which they were purchased; or (2) in a condition where they may be subject to further processing at external manufacturing sites to over-label or over-encapsulate the products to hide their identity. Comparators acquired by Company A [X] are not sold either before or after importation.
Company A [X] proposes to use modified computed value to appraise the comparators it will import. Specifically, Company A [X] proposes to add (1) annual average price per unit to acquire comparators for the previous year; (2) annual average price per unit for processing to over-label or over-encapsulate incurred in the prior year based on actual invoice charges; (3) any transportation costs to move comparators to processing sites, if not already included in relevant purchase and assembler invoices; and (4) additional packaging costs required to transport goods to the United States.
The average cost per item for comparators will be calculated on an annual basis, using the previous year's average price per item to acquire comparators as recorded in Company A [X]'s financial systems by cost center. The average cost per item for processing over-label or over-encapsulate will also be calculated an annual basis, using the previous year's average cost per item based on actual invoice charges from third party processors/assemblers who over-label or over-encapsulate products.
ISSUES:
I. Whether the imports of clinical FDP, DP, and API lacking available commercial prices and any approval for commercial sale to treat any disease indication, as described above, may be appraised pursuant to 19 U.S.C. 1401a(f) in the manner identified?
II. Whether the imports of clinical FDP, DP, and API with available commercial prices and approval for commercial sale to treat at least one disease indication, as described above, may be appraised pursuant to 19 U.S.C. 1401a(f) in the manner identified?
III. Whether the comparators imported, as described above, may be appraised pursuant to 19 U.S.C. 1401a(f) in the manner identified?
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a. The transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus amounts for five enumerated statutory additions. 19 U.S.C. 1401a(b). In order for imported merchandise to be appraised using the transaction value method, it must be the subject of a bona fide sale between a buyer and a seller, and the sale must be for exportation to the United States.
I. Clinical FDP, DP, and API lacking any approval for commercial sale to treat any disease indication and commercial prices are not available.
Company A [X] will import FDP, DP, and API for clinical trial manufacturing and testing for drugs that lack any intercompany price for a product because some drugs imported by Company A [X] may have not achieved regulatory approval for commercial sale to treat any disease indication. For such products, Company A [X] proposes to use a modified computed value under the fallback method.[2]
Company A [X] states that the clinical API, DP, and FDP are manufactured at foreign Company B [X]-owned manufacturing sites or by unrelated third-party manufacturers who have no ownership of the products they produce for Company B [X]. After their foreign manufacture, the products are imported into the United States without a sale such that ownership of the products remains with a Company A [X]-related entity throughout the production and trial stages. Since the clinical API, DP, and FDP are not the subject of a sale, the transaction value method set forth in 19 U.S.C. 1401a(b) is not applicable. 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).
The transaction value of identical and similar merchandise is also not available because these specific clinical API, DP, and FDP are only used in clinical trials and there is no information for sales of identical or similar merchandise.
Under the deductive value method, imported merchandise is appraised on the basis of the price at which it or identical or similar merchandise is sold in the United States 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). This price is subject to certain enumerated deductions. 19 U.S.C. 1401a(d)(3). The deductive value is not available to appraise this merchandise because there is no sale after importation and therefore no identifiable price from an actual sale of the merchandise. See 19 U.S.C. 1401a(d). Specifically, the merchandise is used by Company A [X] in clinical trials instead of being sold after importation.
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). The computed value is unavailable because Company A [X] is unable to provide the actual cost at the unit level. Specifically, Company A [X] does not always have the information to determine the actual cost of clinical products at the unit level because clinical trial stage products are not always inventoried, and costs are expensed.
Therefore, these articles must be appraised under the fallback method in 19 U.S.C. 1401a(f)(1), which provides:
Value if other values cannot be determined or used.
If the value of imported merchandise cannot be determined, or otherwise used for the purposes of this chapter, under subsections (b) through (e) of this section, the merchandise shall be appraised for the purposes of this chapter on the basis of a value that is derived from the methods set forth in such subsections, with such methods being reasonably adjusted to the extent necessary to arrive at a value.
There are certain prohibited bases of appraisement under 19 U.S.C. 1401a(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).
As discussed above, Company A [X] proposes to value these clinical FDP, DP, and API with a modified computed value by adding: (1) an average cost per unit based on the average actual per unit price charged by unrelated third-party assemblers to manufacture each product category and stage of product during the prior year, globally; (2) assist values, as they apply, including for materials and components provided to assemblers such as API, DP, and the costs incurred to transport those products to manufacturing production sites, during that given year; and (3) actual or average commercially available market prices of packaging, if required to prepare the product for shipment to the United States.
The use of a modified computed value under 19 U.S.C. 1401a(f) has previously been approved by CBP for pharmaceutical R&D materials (e.g., APIs, intermediate drug products, and comparators). For example, in HQ H125103, dated December 28, 2010, CBP considered the use of a modified computed value methodology for imported Active Pharmaceutical Ingredients based on an average annual manufacturing cost per kilogram of the API by site. The importer proposed to add the average annual direct and indirect manufacturing cost per kilogram of APIs (together equaling the average annual manufacturing cost per kilogram of API) and forecasted research and development cost per kilogram per campaign to equal the campaign-specific API cost per kilogram. The importer provided a detailed description on how they proposed to arrive at the value, and it used annual data as the importer was unable to attribute data to the particular material upon importation. CBP held that this method was in accordance with previous cases and was an appropriate formula for appraisement under a modified value method. See also HQ H011276, dated February 4, 2008; see also HQ W548164, dated September 20, 2002.
For the modified computed value, Company A [X]'s proposes valuing the clinical products manufactured by both related Company B [X]-owned manufacturing sites and unrelated assemblers using an average that is based on the costs charged by third party assemblers to manufacture the clinical products in the prior year.
In HQ H011276, CBP approved the use of a modified computed value under 19 U.S.C. 1401a(f) with an average cost per gram based on the aggregate costs of all compounds purchased from third parties in the previous year to value both the compounds purchased from the unrelated third parties and the chemical compounds synthesized internally. HQ H011276 (dated February 4, 2008) at 5. As in HQ H011276 where the importer "[did] not have the accounting systems necessary to determine a specific standard cost for any R&R materials that it manufactures or ships[,]" Company A [X] lacks the accounting systems needed to determine a consistent and reliable average per unit cost for internally manufactured clinical products. See Id. at 3. According to Company A [X], a modified computed value based exclusively on the cost to acquire the clinical pharmaceutical products from third party manufacturers would be more consistent and reliable for three main reasons. First, it is difficult for Company A [X] to track volumes of output produced for internally produced pharmaceutical products at the clinical trial stages in order to calculate a per unit cost because the products are constantly changing (such that these products and materials are not typically inventoried by Company A [X] for accounting purposes) until Company A [X] arrives at a drug that successfully treats the disease identification for which it is being tested. Second, it is difficult for Company A [X] to calculate a per unit cost for internally produced pharmaceutical products at the clinical trial stage because the same resources are used for multiple clinical products and tracking resource allocations for these products is subject to decisions being made by a variety of teams to allocate expenses related to direct expenses, labor, indirect expenses, general expenses, etc. Third, Company A [X] has a large global manufacturing footprint that involves multiple manufacturing sites around the world, multiple ERP systems, and many global resources that touch production along the way. These manufacturing sites and ERP systems may not always track and manage information and financial data the same way, and tracking may also change as a result of Company A [X]'s annual optimization initiatives and projects. Further, Company A [X] explains that these accounting challenges are common across pharmaceutical companies who are developing drugs for clinical trials.
Thus, the circumstances presented in the case at hand are similar to those in HQ H011276 because the importer in the present case represented that it is similarly unable to determine a reliable and consistent average per unit cost for internally manufactured clinical products.
Company A [X]'s proposed methodology uses an average that is based exclusively on the costs from third party assemblers and fails to account for the costs from related Company B [X]-owned manufacturing sites. However, based on the information available in Company A [X]'s financial systems, a modified computed value based on costs from both Company B [X]-owned manufacturing sites and third-party assemblers would be less reliable and consistent than a value accessed using Company A [X]'s proposed methodology.
As discussed above, in situations where the third-party assemblers do not source their own materials to manufacture the pharmaceuticals, Company A [X] provides the third-party assemblers with assists in the form of its key compounds, such as API provided to DP Manufactures and DP provided to FDP assemblers that perform final packaging/labelling services. In these cases, Company A [X] will add the amount of these assists to the clinical product customs value. Company A [X] proposes to determine the value of assists that are key compounds in two ways. In general, Company A [X] will base the value on the average prior year acquisition cost to produce the relevant assists (e.g., API) based on the actual invoices charged by assemblers as recorded in Company A [X]'s financial Systems. However, Company A [X] states that it may alternatively use the actual invoice value charged by a single assembler to value the key compound assists if one is available. Such an approach would be based purely on Company A [X]'s discretion and could potentially result in an overall undervaluation for the key compound assists because Company A [X] could hypothetically choose to only use the actual cost when a key compound from a particular assembler is low-value while also using the same low-value key compound to calculate the average per unit cost for the other key compound assists, including some that may have a greater actual cost. While we find that valuing the key compound assist based on the average prior year acquisition cost to produce the relevant assists is acceptable under 19 U.S.C. 1401a(f), we also find that allowing Company A [X] to use its discretion to value key compounds assists based on their actual invoice in certain situations is unacceptable under 19 U.S.C. 1401a(f) because it would cause Company A [X]'s proposed methodology to become arbitrary.
Thus, acknowledging that Company A [X] is not able to value key compound assists using their actual cost in certain situations based on their discretion under this proposed methodology, we find that Company A [X]'s proposed methodology for modified computed value, as modified and described above, is a reasonable modification under the valuation statues because it facilitates reaching a reliable and consistent value.
Based on these specific circumstances, we find that the use of the modified computed value methodologies, as described above, is an acceptable means to appraise certain clinical FDP, DP, and API under 19 U.S.C. 1401a(f).
II. Clinical FDP, DP, and API with approval for commercial sale to treat at least one disease indication and commercial prices are available.
Company A [X] will import FDP, DP, and API for clinical trial manufacturing and testing for drugs that already have regulatory approval for commercial sale to treat a different disease indication. For such products, Company A [X] maintains pre-existing global sale price lists for both intercompany and customer sales for the commercial drug and imports those shipments based on commercial sale transactions. Company A [X] typically declares intercompany prices for commercial imports.
Transaction value is not applicable because there is no sale for exportation to the United States. Instead, the clinical FDP, DP, API are manufactured abroad by related companies or by third party assemblers and are shipped to a [X]-related entity in the United States without a sale.
Company A [X] proposes to use transaction value of identical or similar merchandise when commercial products are imported at or about the same time and from the same country of export as the clinical FDP, DP, or API being appraised. Under 19 U.S.C. 1401a(c), 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. The term "identical merchandise" is defined in 19 U.S.C. 1401a(h)(2) as:
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, 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:
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 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).
Accordingly, the use of the transaction value of identical and similar merchandise is an acceptable means to appraise clinical FDP, DP, or API when an importation of identical or similar merchandise is available to appraise the imported clinical FDP, DP, or API.
However, when the clinical FDP, DP, or API in this category (i.e., Clinical FDP, DP, and API with approval for commercial sale to treat at least one disease indication and commercial prices are available) are being appraised and are not imported at or about the same time or is not being imported from the same country of export as another importation of an identical or similar FDP, DP, or API that has an ascertainable transaction value, transaction value of identical or similar merchandise is not merchandise is not available and a different method of valuation must be used. Deductive value is not available because clinical FDP, DP, and API in this category are imported for clinical trial purposes and there is no sale after importation. Computed value is also unavailable because Company A [X] is unable to provide the actual cost at the unit level. Specifically, Company A [X] does not always have the information to determine the actual cost of clinical products at the unit level because clinical trial stage products are not always inventoried, and costs are expensed. Therefore, the articles in this category must be appraised under the fallback method in 19 U.S.C. 1401a(f)(1) for the reasons described above.
When the transaction value of identical or similar merchandise is not available to appraise the clinical FDP DP, or API at issue, Company A [X] proposes to use a modified transaction value of identical or similar merchandise, pursuant to 19 C.F.R. 152.107. Specifically, Company A [X] proposes to add (1) the intercompany price for the commercial FDP, DP, and API when sold for export to the United States; and (2) an amount for additional packaging as discussed above if required for transportation to the United States.
Notably, the fallback method in 19 C.F.R. 152.107 discusses identical and similar merchandise, which provides:
(b) Identical merchandise or similar merchandise. The requirement that identical merchandise, or similar merchandise, should be exported at or about the same time of exportation as the merchandise being appraised may be interpreted flexibly. Identical merchandise, or similar merchandise, produced in any country other than the country of exportation or production of the merchandise being appraised may be the basis for customs valuation.
We find that the use of Company A [X]'s intercompany price is reasonable to use for the modified transaction value of identical or similar merchandise because it is based on the actual price charged by Company A [X] when identical FDP, DP, and API are sold for export to the United States. Based on these specific circumstances and assuming that the relationship between the buyer and the seller does not affect the price actually paid or payable for the identical or similar merchandise, we find that the use of the modified transaction value of identical or similar merchandise methodology, as described above, is an acceptable means to appraise certain clinical FDP, DP, and API under 19 U.S.C. 1401a(f).
III. Comparators
Transaction value is not applicable because there is no sale for exportation to the United States. Instead, the comparators are purchased in foreign countries by Company A [X]-related entities and are shipped to a Company A [X]-related entity in the United States without a sale. The transaction value of identical and similar merchandise are also not available because there are no available importations of identical or similar merchandise to appraise the imported materials that make up the comparators. Deductive value is not available because comparators are imported for clinical trial purposes and there is no sale after importation. Computed value is also unavailable because Company A [X] purchases comparators and the cost to produce the goods is unknown. Therefore, the comparators at issue must be appraised under the fallback method.
As discussed above, Company A [X] proposes to value comparators with a modified computed value by adding (1) annual average price per unit to acquire comparators during the previous year; (2) annual average price per unit for processing to over-label or over-encapsulate incurred during the prior year; (3) any transportation costs to move comparators to processing sites, if not already included in relevant purchase and assembler invoices; and (4) additional packaging costs required to transport goods to the United States. The average cost per item for comparators will be calculated on an annual basis, using the previous year's average price per item to acquire comparators as recorded in Company A [X]'s financial systems by cost center. The average cost per item for processing over-label or over-encapsulate will also be calculated on an annual basis, using the previous year's average cost per item based on actual invoice charges from third party processors/assemblers who over-label or over-encapsulate products.
In H011276, CBP approved the use of a modified computed value under 19 U.S.C. 1401(f) to value comparators used in clinical trials based on "the value of the drug product used in the corresponding clinical trial[.]" H011276. Company A [X]'s proposed methodology is equally tailored, if not more so, as the one approach CBP approved previously because the value is based on the comparators and the aggregate costs of acquiring them. CBP has also approved previously a modified computed value that permitted the use of an annual average per item cost of over-labelling and over-encapsulating for comparators based on the previous year's data. See H125103, dated December 28, 2010.
Based on these specific circumstances, we find that the use of the modified computed value methodology, as described above, is an acceptable means to appraise the comparators at issue under 19 U.S.C. 1401a(f).
HOLDING:
The fallback methods of appraisement, as described above, are appropriate for the comparators, clinical FDP, DP, and API that lack commercial prices and approval for commercial sale to treat any disease indication, and clinical FDP, DP, and API with approval for commercial sale to treat at least one disease indication and have a commercial value available.
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 [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 Brenner, Chief
Valuation and Special Programs Branch
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[1] See Peerless Clothing Int'l Inc. v. United States, 602 F. Supp. 2d 1309, 1324 (Ct. Intl. Trade 2009) (citing 19 U.S.C. 1401a(g)(3)) ("The term 'generally accepted accounting principles' refers to any generally recognized consensus or substantial authoritative support regarding - (A) which economic resources and obligations should be recorded as assets and liabilities; (B) which changes in assets and liabilities should be recorded; (C) how the assets and liabilities and changes in them should be measured; (D) what information should be disclosed and how it should be disclosed; and (E) which financial statements should be prepared. The applicability of a particular set of generally accepted accounting principles will depend upon the basis on which the value of the merchandise is sought to be established.").
[2] Although Company A [X] proposes using either a modified transaction value or modified computed value to appraise the merchandise at issue in the ruling request, Company A [X] appears to only provide a valuation methodology proposal for modified computed value.