VAL OT:RR:CTF:VS H020270 FP
Laurie Peach
National Customs Manager
American Honda Motor Company, Inc.
1919 Torrance Boulevard
Torrance, California 90501-2746
RE: Valuation; "superdeductive" method in 19 U.S.C. 1401a (d)(2)(A)(iii); “fallback” provision in 19 USC 1401a(f); damaged transmission cores imported for use in the production of rebuilt automobile transmissions.
Dear Ms. Peach:
This is in response to your letter requesting a binding ruling on behalf of American Honda Motor Co., Inc. (“American Honda”) as to the proper method of appraisement pursuant to 19 U.S.C. 1401a for imported transmission cores used in the production of rebuilt transmissions in the U.S.
FACTS:
American Honda, of Torrance, California, is an importer and manufacturer of automotive parts, equipment and vehicles under the Honda and Acura marques. According to its submission, American Honda imports damaged transmission cores that have been recovered from its Honda and Acura vehicles from two affiliated companies in Canada and Mexico via the ports of Detroit, Buffalo and Port Huron (for imports from Canada) and the ports of Laredo and El Paso (for imports from Mexico).
The affiliates obtain the transmission cores from Canadian and Mexican automobile dealers, who have been sent a rebuilt transmission and received the damaged cores from their customers in connection with warranty claims. After the affiliates obtain these transmission cores from the dealers they export the transmission cores to American Honda. This export does not involve a sales transaction, since the transmission cores are exported to American Honda free of charge.
American Honda imports the transmission cores into the United States and provides them to a third party that produces rebuilt transmissions for American Honda using components from the transmission cores and new replacement parts as needed. American Honda thus incurs (1) the rebuilding costs paid to the third party remanufacturer, (2) the costs of new replacement parts as needed, and (3) costs to administer the transmission rebuilding program.
American Honda sells the rebuilt transmissions to dealers in the United States at so-called "dealer net prices". For those sales, American Honda generally reviews and resets dealer net prices twice each fiscal year, generally effective April 1 and October 1 of each year. American Honda claims that it does not receive rebuilt transmissions or update its dealer net prices for all of the rebuilt transmission part numbers corresponding to the transmission cores it may import during a particular fiscal half-year. That is, during a particular fiscal half year there may not be any units of a particular part number being rebuilt by its third party remanufacturer and/or American Honda may not update its dealer net price for that part number. Further, in pricing the rebuilt transmissions American Honda states that it attempts to recover its costs for its overall sales of the rebuilt transmissions over a particular period, rather than recovering its costs during that period for each individual part number.
American Honda has been calculating the value of the transmission cores based on the "superdeductive" value provision in 19 U.S.C. § 1401a(d), using dealer net prices at which American Honda sells the rebuilt transmissions and deducting the value added in the United States, based on the factory remanufacturing costs, the additional parts costs, and American Honda's program administrative costs. However, American Honda claims that it has become virtually impossible for it to calculate superdeductive values for many of the imported transmission cores for a number of reasons including (1) that for some part numbers the imported transmission cores are not being used to rebuild transmissions that are sold to dealers within 90 days after the date of importation and (2) that for some part numbers the total costs to be deducted from the dealer net price (that is, the additional parts costs, the processing costs, and American Honda's program administration costs) exceed American Honda's dealer net price for the rebuilt transmission.
Accordingly, American Honda has proposed an alternative valuation approach under the fallback provision to appraise the used transmission cores by using a value derived from the superdeductive value, based on the U.S. list price in effect for a particular rebuilt transmission, adjusted by a factor, equivalent to a certain percentage of the current list price, that takes into consideration the weighted average historical costs of rebuilding the transmission cores (recalculated twice a year).
ISSUE:
What is the proper method of appraisement for certain used transmission cores used in the production of rebuilt transmissions in 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 merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. 19 U.S.C. § 1401a(b)(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 current situation, the damaged transmissions are not the subject of a sale between American Honda and its affiliates. The absence of a sale eliminates transaction value as a method to appraise the imported transmission cores.
When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. 19 U.S.C. § 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)); deductive value (19 U.S.C. § 1401a(d)); computed value (19 U.S.C. § 1401a(e)); and the “fallback” method (19 U.S.C. § 1401a(f)).
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. See 19 U.S.C. § 1401a(c). American Honda claims that it has no information concerning sales of similar or identical transmission cores made at or about the same time as the merchandise imported. If that is the case, it will not be possible to appraise the transmission cores on the basis of transaction value of identical or similar merchandise.
Under the deductive value method, merchandise is appraised on the basis of the unit price at which it is sold in the U.S., in its condition as imported, in the greatest aggregate quantity. See 19 U.S.C. §§ 1401a(d)(2)(A)(i)-(ii). However, the use of deductive value is subject to certain limitations in regard to the time within which the imported merchandise must be sold (up to 90 days); if it were not sold within the allowable time, deductive value would be inapplicable. If merchandise is not sold in the condition as imported, the importer may elect for it to be appraised pursuant to the "superdeductive" method. See 19 U.S.C. §1401a(d)(2)(A)(iii). In this case the unit price is defined as that as which merchandise is sold in the greatest aggregate quantity before the 180th day after importation. For both deductive and “superdeductive” methods, the unit price is subject to certain enumerated deductions. See 19 U.S.C. § 1401a(d)(3). Your letter indicates that American Honda has previously attempted to use the “superdeductive” method, but that it has become impossible for various reasons. We will examine the reasons stated below.
Under the computed value method, merchandise is appraised on the basis of the material and processing costs incurred in the production of 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). American Honda claims that it is virtually impossible to obtain original cost records for the transmission cores involved, making the computed value method also unavailable as an appraisement method.
When merchandise cannot be appraised under the methods set forth in 19 U.S.C. §§ 1401a(b)-(e), its value is to determined in accordance with the “fallback” method set forth in section 402(f) of the TAA. The fallback method provides that merchandise should be appraised on the basis of a value derived from one of the prior methods reasonably adjusted to the extent necessary to arrive at a value. See 19 U.S.C. § 1401a(f) and 19 CFR 152.107.
American Honda requests that the value of the imported used transmission cores be determined using the fallback method based on the methodology described above.
First, we want to clarify the limitations in the applicability of the “superdeductive” valuation method. Your letter states that American Honda has been unable to calculate superdeductive values for a number of reasons, inter alia, that some used transmission cores are not subject to remanufacture and sale “within the statutory time period (90 days after importation)”.
While the use of deductive value is indeed subject to certain limitations in regard to the time within which the imported merchandise must be sold, the use of “superdeductive” value only requires that merchandise be sold “before the 180th day after the date of such importation”. See 19 U.S.C. §1401a (d)(2)(A)(iii).
Furthermore, the deductive value methods in 19 U.S.C. §§ 1401a (d)(2)(A)(i)-(ii) apply only to merchandise to be sold in the U.S. in its condition as imported, while the “superdeductive” method in 19 U.S.C. §1401a (d)(2)(A)(iii) is only applicable to merchandise that undergoes further processing prior to its sale in the U.S.
Merchandise can only be appraised in accordance with the “fallback” method when it cannot be appraised under any of the methods set forth in 19 U.S.C. §§ 1401a(b)-(e). Consequently, we strongly encourage American Honda to use the “superdeductive” valuation method to the extent possible, prior to applying the provisions of section 402(f) of the TAA.
Customs has issued several rulings on the subject of imported articles to be repaired in the U.S. In each case, the value was determined using the fallback method derived from a prior method, e.g. deductive value or computed value, with reasonable adjustments to take into account the fact that the imported goods were imported to be repaired and were used goods.
For example, in Headquarters Ruling Letter (HRL) 548688, dated
October 20, 2005, Customs allowed an importer to appraise imported power supplies in need of repair by determining the current standard cost of new units, based on the cost of the parts, labor and other expenses associated with producing new units and then subtracting the average cost of repair. In HRL 548211, dated July 2, 2003, Customs allowed the importer to estimate the cost of repairs using a sampling technique applied to a random selection of spare parts, and subtract that from the current list price of the imported good to be repaired. The current list price was based on the importer’s published replacement parts list, which was the highest price for which each spare part was sold new, exclusive of any discounts. In HRL 547877, dated January 23, 2002, Customs held that for equipment returned to the U.S. for repair, two deductions from the new sales price list were permitted; one for the repair and one for depreciation. In HRL 563470, dated June 12, 2006, Customs found that the proposed methodology was possibly even more accurate than the method used in HRL 548211 because the formula for estimating the repair cost and depreciation would be updated and recalculated annually.
American Honda’s proposed method is possibly even more accurate than the method used in HRL 548211 because it involves recalculations of the adjustment factor twice a year, rather than annually.
Therefore, based on the above ruling letters, we find that the method for appraisement proposed by American Honda for the used transmission cores is acceptable under the fallback method. As discussed above, Customs has found similar formulas to be reasonable under previous rulings. We have reviewed the basis for the deduction and find that it would be reasonable to use the formula proposed by American Honda as a basis of appraisal under 19 U.S.C. § 1401a(f).
HOLDING:
To the extent possible, the subject merchandise should be appraised under the “superdeductive” value method of appraisement set forth in 19 U.S.C. §1401a(d)(2)(A)(iii), for those remanufactured transmission cores sold in the U.S. before the 180th day after the date of importation.
When the “superdeductive” method in 19 U.S.C. §1401a(d)(2)(A)(iii) is not available as a basis of appraisement for the used transmission cores described above, they may be appraised on the basis of the “fallback” method pursuant to 19 U.S.C. § 1401a(f).
That is, that the affected merchandise could be appraised under the “superdeductive” value method of appraisement, "reasonably adjusted" to the extent necessary to arrive at a value.
The imported used transmission cores may be appraised based on the formula proposed by American Honda that uses the current U.S. list price, reflecting the cost of a new transmission, adjusted by deducting the weighted average cost of rebuilding the article (replacement parts, labor and administrative), as described above, calculated on a twice-yearly basis.
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 Customs official handling the transaction.
Sincerely,
Monika R. Brenner
Chief, Valuation & Special Programs Branch