OT:RR:CTF:VS H334408 RMC
Louis S. Shoichet
Sandler, Travis & Rosenberg, P.A.
675 Third Avenue, Suite 1805-06
New York, NY 10017
RE: Valuation Treatment of Outdated and Obsolete Leather Provided by Buyer to Sellers at Fair Market Value; Assists
Dear Mr. Stoichet:
This is in response to your letter, dated September 12, 2023, on behalf of the importer. In your letter, you request a binding ruling pursuant to 19 C.F.R. Part 177 on the valuation treatment of outdated and obsolete leather that the importer will sell to producers, at fair market value, for use in their production of merchandise to be purchased by the importer.
FACTS:
According to the information provided, the importer acts as a distributor of leather products such as handbags, small leather goods and accessories, and leather footwear in the U.S. market. Part of its business model includes contracting with foreign suppliers to produce goods to certain specifications. You state that, in cases where the supplier’s anticipated production must be cancelled, and the supplier cannot put the leather acquired at the importer’s request to other uses, the importer will typically agree to purchase it at the cost incurred by the supplier. Ownership is then transferred to the importer, and the purchase is recorded on the importer’s books at the cost of acquisition.
The importer refers to leather purchased in such scenarios as “outdated” or “obsolete.” You state that as leather ages, it becomes less supple and less commercially valuable. As a result, in the ordinary course, the importer’s purchases of outdated or obsolete leather are typically destroyed or sold to third parties at sharply reduced prices.
As part of its Environmental, Social, and Governance strategy, however, the importer is seeking opportunities to repurpose outdated or obsolete leather. This ruling request concerns a proposal to sell such leather to suppliers at “fair market value” for use in the production of goods to be purchased by the importer.
Under this proposal, the importer will establish the fair market value of the outdated or obsolete leather by “contacting one or more unrelated domestic third-party buyers and soliciting bids for the material.” These bids would then be used to establish a “rate card” representing the arm’s-length commodity price for a particular grade of material for a given period of time. The importer would then periodically review and update this price based on market conditions. In your ruling request, you ask about the assist implications of outdated or obsolete leather sold to suppliers under proposal.
ISSUE:
Whether leather that the importer will sell to suppliers at fair market value for use in the production of imported merchandise constitutes an assist for purposes of customs valuation.
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 at 19 U.S.C. § 1401a. The preferred method of appraisement under the TAA is transaction value, defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus certain enumerated additions, including “the value, apportioned as appropriate, of any assist.” 19 U.S.C. § 1401a(b)(1)(C).
Section 402(h) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. § 1401a(h), provides, in relevant part:
(1)(A) The term “assist” means any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise:
(i) Materials, components, parts, and similar items incorporated in the imported merchandise . . . .
Here, the leather than the importer will sell to suppliers constitutes a “material” that will be used “in connection with the production or sale for export to the United States of the merchandise.” As indicated in 19 U.S.C. § 1401a(h)(1)(A), however, such materials constitute “assists” for purposes of customs valuation only if the buyer of the imported merchandise provides them “free of charge or at a reduced cost.” Here, you argue that the importer’s proposed method of soliciting bids for the materials to be sold to suppliers for use in the production of imported merchandise will establish their “fair market value.” For that reason, such materials are neither provided “free or charge” or “at a reduced cost” and do not constitute assists for purposes of customs valuation.
In Headquarters Ruling (“HQ”) 543619, dated October 23, 1985, U.S. Customs and Border Protection’s predecessor agency, the United States Customs Service, held that a similar transaction did not raise assist implications. In that case, the importer planned on selling an inventory of old fabric to an unrelated foreign manufacturer for use in the production of jackets. The importer proposed to establish the sales price by soliciting offers from domestic firms for the purchase of the fabric before selling the fabric to the foreign manufacturer at a price equal to the highest domestic bid. U.S. Customs held that this method was “proper for attributing fair market value to the old fabric.” Accordingly, U.S. Customs agreed that “there are no assist implications with respect to the prospective transactions.”
Here, as in HQ 543619, the importer seeks to establish the fair market value of old materials—specifically, outdated or obsolete leather—by soliciting bids from domestic firms. Provided that the leather is subsequently sold to producers at a price equal to the highest domestic bid, and that prices are periodically reviewed and appropriately updated to reflect shifts in market conditions, we hold that the importer here has established the materials are not sold “at a reduced cost” within the meaning of 19 U.S.C. § 1401a(h)(1)(A). As a result, the leather will not constitute an assist for purposes of customs valuation.
.
HOLDING:
Under the facts as presented, the outdated or obsolete leather will not constitute an assist for purposes of customs valuation.
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,
Elif Eroglu, Acting Chief
Valuation and Special Programs Branch