VAL-OT:RR:CTF:VS H301482 RSD
Mr. Ken Cheng
Senior Manager-Logistic & Compliance
Samsung Semiconductor, Inc.
3655 North First Street
San Jose, California 95134
RE: Appraisement of Imported Defective and Returned Semi-Conductors Processed in the United States to Recover Precious Metals; Fallback Method, 19 U.S.C. § 1401a(f)
Dear Mr. Chen:
This is in response to your letter dated October 2, 2018, concerning the request for a ruling concerning the proper valuation of imported defective semi-conductors which are returned to the company for processing and recovery of precious metals. A telephone conference to discuss your request was conducted with a member of my staff on December 4, 2018.
FACTS:
Samsung Semiconductor, Inc. (SSI) is a San Jose California based subsidiary of Samsung Electronics Corporation, LTD., which in turn is a division of the Korean based Samsung Group. Samsung Electronics Group Korea manufactures advanced semi-conductor products such as components (DRAM, SRAM, Flash, etc.), Memory modules, Solid State Drives (SSD’s), and various other items.
The semi-conductor products are manufactured worldwide in various Samsung Electronics Corporation factories located in countries such as South Korea, Philippines, Vietnam, China, etc. SSI buys these goods from Samsung Electronics Corporation, Korea, and resells them to its customers around the world. When SSI receives a purchase order for these semi-conductor products from one of its customers, the Samsung Electronics Corporation will ship these items directly to its customers in countries throughout the world. When the customer receives products that it determines were defective, they are supposed to be returned to SSI in the United States because SSI is the actual seller of the products.
Upon receiving and using SSI’s products, if the customer determines any products to be non-functional due to the technical or quality failures arising out of manufacturing defects or damage due to improper shipment or handling during transportation, the customer is supposed to immediately notify the SSI sales team of the defects in the products along with pictures, and await further action from SSI.
SSI’s quality assurance engineers will review the pictures and the report sent in by its customers in order to assess the non-functionality of the products and thereafter, upon validation it will confirm the failure to the SSI sales term. At that time, the SSI sales team will issue a return authorization number (RMA) to the customer. The RMA authorizes the customer to return the defective or damaged good back to SSI’s facilities in San Jose, California. Upon receiving the RMA number and shipping instructions from SSI, the customer ships the products to SSI. Once the products arrive at SSI, a quality inspection team verifies the issued RMA numbers and reviews these items. After the checks are completed and validation is confirmed, SSI issues a refund to the customer.
After the defective goods arrive at the SSI facility, they are placed in a barrel for scrapping. When the barrel of the defective items is full, SSI takes it a local scrap vendor, Glencore Recycling, Inc. (Glencore). Upon their arrival at the Glencore facility, the goods are completely shredded, effectively destroying the electronic components.
The destroyed material is then run through a splitter. A representative sample is split off for further processing to determine the precious metal content of the material. The sample essentially follows a process where it is baked, grinded, screened and then melted. This process produces a sample from the melt and a sample from the pulp that was screened off from the metallic melt. The samples are analyzed at the Glencore laboratory to determine the overall precious metal content of the materials.
Once the overall content of the scrap is determined, the bulk portion of the destroyed material is shipped for use as an ingredient at Glencore’s Horne Smelter, which is a primary copper smelter. An SSI employee witnesses the destruction process to ensure that there is no theft or pilferage of these products, and that the products are fully destroyed as mandated.
The precious metals recovered through the scrap process include silver, gold, copper, and palladium. Once the entire process is complete, Glencore issues a settlement report to SSI, along with a certificate of destruction and payment for the precious metal content minus the deductions and charges for the scrap services.
At the time the defective products arrive at its facility, SSI claims that it knows the weight and the amount of the precious metals contained in each of its products based on the part number and respective part quantities. SSI seeks to have the Customs value for the imported defective or damaged imported semi-conductor devices determined using the weight of their precious metal content multiplied by the latest New York Mercantile Metal Exchange commodity pricing for the day they are imported into the United States. Glencore charges SSI a processing fee based on the precious metal content, which SSI is able to predict before the defective/damaged semi-conductors are imported into the United States. The fees that Glencore charges for the processing it performs to obtain the precious metals from the damaged or defective semi-conductors includes a treatment fee and a lot processing fee. However, because these processing fees are small, in determining the Customs valuation of the defective or damage semi-conductors, SSI does not intend to subtract these processing costs. Instead, SSI will just declare the Customs value of the imported defective semi-conductors based solely upon the value of their precious metal content. In the rare event, that the value of the precious metals is less than the charges for the scrap processing services, the Customs value would be set at the cost of the scrap processing fees charged to obtain the precious metals.
ISSUE:
For customs valuation purposes, what is the correct method of appraising the imported defective or damaged semi-conductors that are processed in the United States to obtain their precious metal content?
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).
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 (January 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, because the semi-conductors are defective or damaged when they are imported into the United States, they cannot be used for electronic devices. The only purpose that these products have is for salvaging the precious metals that are contained in them.
In the instant case, the imported semi-conductor devices are not the subject of a bona fide sale between a buyer and seller for exportation to the United States because SSI, the importer, does not purchase the defective products. Therefore, there is no sale when the imported defective products enter the United States, and they cannot be appraised under the transaction value method set forth in section 402(b) of the TAA. 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).
Transaction value of identical or similar merchandise is not available in this case because there are no goods entering into the United States at or about the same time that are identical or similar at the same commercial level and in substantially quantity to the defective and damaged products at issue here. Therefore, the use of transaction value or identical or similar merchandise under 19 U.S.C. § 1401a(c) is not applicable in this case.
Similarly, deductive value under 19 U.S.C. § 1401a(d) is not available in this case because the imported merchandise, the defective or damage semi-conductors, are not sold after they are entered into the United States nor are there any sales in the United States of identical or similar merchandise.
Computed value under 19 U.S.C. § 1401a(e), would also not be applicable in this case because it applies only to goods in a newly manufactured condition not in the state in which they are actually imported into the United States. In this situation, when the semi-conductor products are imported into the United States, they are defective or in a damaged condition, which renders them incapable of being used for any purpose other than for salvaging the valuable precious metals, which are contained in them. Therefore, computed value is not an appropriate method for appraising the imported semi-conductors.
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). 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. However, there are certain prohibited bases of appraisement under section 402(f), 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:
Fix 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 imported scrap materials may be determined under the fallback method provided for in section 402(f) of the TAA, using all reasonable ways and means, so long as the particular basis is not specifically precluded under section 402(f)(2)(D).
In Headquarters Ruling (HQ) H251593, dated October 9, 2014, Sabin Metal Corporation (Sabin) was an importer of “scrap” materials such as scrap industrial parts, spent catalysts and scrap electronic equipment. Sabin’s primary business was recovering precious metals, primarily platinum, from imported scrap materials. Most of Sabin’s imported shipments arrived on a consignment from its customers, who paid Sabin a processing fee to recover the precious metals from the imported scrap on their behalf. Once the precious metal was in its recovered form, Sabin determined the quantity of precious metal recovered from the scrap using an assay, which revealed the amount of metal present in the scrap material at the time of importation. In most instances, Sabin further refined the precious metal from the recovered form into a form suitable for sale (essentially pure). In other instances, Sabin shipped the recovered metal to a third party refiner for further refining. In either case, the refined precious metal continued to be owned by Sabin’s customer and Sabin simply had possession.
In HQ H251593, we concluded that the imported scrap material should be valued for Customs purposes by using the fallback method based on the value of the precious metal obtained after processing in the United States as determined by its price on a metals exchange 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. 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. Furthermore, we also concluded that in the rare instances where the cost of the processing of the scrap materials exceeded the value of the precious metals obtained, because the imported merchandise had no real commercial value at the time it was imported, the scrap material should be appraised based on the cost of the fees that the processor charged its customer to do the processing to recover the precious metal. See HQ H130310 dated November 18, 2010.
We note that the situation in this case, is slightly different from the circumstances involved in HQ H251593 because, in that case, the importer did not know the exact amount of the precious metal contained in its products until after they were imported into the United States. In contrast, SSI claims they will know the exact quantity of the precious metals contained in the defective or damaged semi-conductor products prior to their importation into the United States. The information regarding the amount of precious metals contained in the defective or damaged products will be shown on the material data declaration sheets for each imported commodity. Despite this difference, the basic circumstances of this case are very similar to the facts of HQ H251593 because there is no sale for exportation and at the time of their importation, the damaged or defective semi-conductors have no use other than to extract their precious metal content. Instead, the value of the imported defective semi-conductors is the result of the operations performed in the United States to remove the precious metals from the imported semi-conductors. Accordingly, the analysis of HQ H251593 is applicable to this case.
A similar outcome was found in HQ H287885, dated October 18, 2017, where carbon fines containing precious metal content were imported into the United States. The entire entered value of the imported carbon fines was totally attributable to the particles of precious metals contained in the carbon fines. It was recognized that the carbon fines had no value except for the particles of precious metals contained in them. The imported carbon fines were not the subject of a bona fide sale between a buyer and a seller for exportation to the United States because the importer did not purchase the carbon fines, but only transported the carbon fines to a purchaser who conducted an assay for the recovery of the gold content contained the carbon fines. It was noted that the value of the imported merchandise was the result of the refining operation performed in the United States to extract the gold from the carbon fines. CBP held that the imported carbon fines may be appraised under the fallback method under 19 U.S.C. § 1401a(f) based on the price of the precious metal 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 metal obtained as shown in the Precious Metals Settlement report issued by the purchaser minus the cost of the processing fees charged by the purchaser to recover the precious metals from the carbon fines.
Consequently, in accordance with HQ H251593 and HQ H287885, we hold in this case, that the imported defective or damaged semi-conductors may be appraised using the fallback method under 19 U.S.C. § 1401a(f) based on the value of the precious metals obtained from the processing performed in United States as determined by their price on a metals exchange market on the date of entry multiplied by the weight of the precious metals. When the defective and damaged products are imported into the United States, SSI will already have detailed material data sheets indicating the exact weight of the precious metals contained in these products. Therefore, SSI should be able to accurately report the value of the defective or damaged semi-conductors at the time they are imported into the United States. In the unusual event, that there are any differences in the amounts of the precious metals shown on material data sheets from the amount indicated on the final Precious Metals Settlement Report between SSI and Glenmore, the differences in the valuation calculations can be accounted for by filing a post entry summary correction or through the reconciliation entry process.
HOLDING:
The imported defective or damaged semi-conductor products shall be appraised under the fallback method of 19 U.S.C. § 1401a(f) based on the content and the value of the precious metals contained in the imported defective or damaged semi-conductors as determined by the price for such precious metals on a mercantile metal exchange on the day of entry. SSI can declare the quantity of precious metals contained in the defective semi-conductor devices based upon the information shown on the material data declaration sheets.
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 R. Brenner Chief, Valuation and Special Programs Branch