OT:RR:CTF:VS H321226 RMC
Center Director
Machinery Center of Excellence and Expertise
U.S. Customs and Border Protection
109 Shiloh Dr., Suite 300
Laredo, TX 78045
Attn: Cinthia Romero, Import Specialist
RE: Internal Advice Request; Computed Value; Cost or Value of Materials and Fabrication and Other Processing
Dear Center Director:
This is in response to the request for internal advice (“IA”) initiated by counsel for Chamberlain Group, Inc. (“Chamberlain”) on September 20, 2021. The IA concerns an adjustment to Chamberlain’s computed value calculation for imported merchandise.
FACTS:
According to the information provided, Chamberlain operates a maquiladora production facility in Nogales, Mexico, where it assembles garage door openers, gate openers, and other perimeter-access products. The maquiladora uses materials and funding from Chamberlain to produce finished products and parts, which are then imported into the United States and entered for consumption at the Port of Nogales, Arizona.
Chamberlain states that because there is no sale of the merchandise for exportation to the United States, there is no transaction value under 19 U.S.C. § 1401a(b). Likewise, appraisement under 19 U.S.C. § 1401a(c) is precluded because there are no sales of identical or similar merchandise to the United States. Rather than basing appraisement on deductive value, the next method in the valuation hierarchy, Chamberlain states that it has opted to bypass that method and proceed directly to computed value, as authorized by 19 U.S.C. § 1401a(a)(2).
Chamberlain typically enters its merchandise using estimated computed values based on historical and projected cost data. At the end of the relevant accounting period, Chamberlain closes its books, compares its actual data to the estimates, and files a reconciliation entry to adjust its entered values to the correct computed value.
At issue in this IA is the reconciliation entry that Chamberlain is currently filing for goods imported during the first six months of 2020. Chamberlain has provided evidence that on March 30, 2020, the authorities in the State of Sonora, Mexico, issued an emergency decree in response to the Covid-19 pandemic. The emergency decree immediately closed all nonessential businesses, including Chamberlain’s maquiladora operation.
Although a “skeleton crew” was allowed to come to the maquiladora for maintenance purposes in May of 2020, the facility was otherwise closed for all of April and May of 2020. As a result, no merchandise was produced until Sonoran authorities authorized the factory to resume operations on June 1, 2020. During the shutdown period, however, Chamberlain continued to incur many of its usual costs. For example, it kept all its production workers on full salary and continued to pay various overhead costs such as taxes, insurance, security costs, and utilities.
In its request for IA, Chamberlain asks whether it can exclude the costs that it incurred during the shutdown period from its computed value calculations for the first six months of 2020. In its submission, Chamberlain provided two versions of its Form 247 (Cost Submission)—the first including all of the costs that the maquiladora incurred during the first six months of 2020, and the second excluding the costs incurred during the shutdown period when no merchandise was produced.
The two forms contain identical figures for total material costs (including freight), profit, and packaging (which is included in the value of materials). The changes to the second form relate to foreign operating expenses (specifically, direct labor, overhead, “general and admin,” total operating expenditures, and net operating expenditures), U.S. assist costs (“tools, dies, depreciation”; departmental assists; and scrap), and the total value of the merchandise produced over the six-month period. Regarding the foreign operating expenses, the decrease reflected in the second Form 247 results from excluding the relevant costs (direct labor, overhead, and “general and admin”) that were incurred during the shutdown period when the maquiladora was not producing merchandise.
As for the U.S. assists costs, the second Form 247 reflects a downward adjustment to the categories of “tools, dies, depreciation” and “departmental assists.” Chamberlain explains that the “tools, dies, depreciation” assist category represents the depreciation on molds, dies, and tooling that Chamberlain provided to the maquiladora, and the departmental assist category represents operating costs for production-related departments at the maquiladora which are paid by Chamberlain. The costs that otherwise would have been incurred for these two categories during the shutdown period were excluded in the second Form 247. As there was no scrap generated during the shutdown period, this figure remained unchanged. The changes to each of the line items on the Form 247 result in appropriate corresponding changes to the total value and the total dutiable value for the relevant period.
Chamberlain states that each expense that it excluded from the calculations in the second Form 247 was reclassified to a special corporate account. In other words, the relevant expense was taken from its normal category (e.g., direct labor) and moved into the special corporate account as an extraordinary expense, in accordance with GAAP in Mexico. Accordingly, these expenses were not reflected as part of cost of goods sold on the maquiladora’s books.
ISSUE:
Whether Chamberlain’s computed value calculations for the first six months of 2020 should include costs incurred during a mandatory shutdown during which no merchandise was produced.
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. Transaction value is the “price actually paid or payable for the merchandise when sold for exportation to the United States.” Here, the merchandise cannot be appraised under the transaction value method because the maquiladora does not sell the merchandise to Chamberlain. See, e.g., Headquarters Ruling (“HQ”) H234540, dated January 23, 2013 (holding that a Mexican maquiladora did not sell the imported goods to the U.S. importer because the U.S. importer maintained ownership of the raw materials and title/risk of loss to the finished goods at all times).
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. See 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)); the deductive value (19 U.S.C. § 1401a(d)); the computed value (19 U.S.C. § 1401a(e)); and the “fallback” method (19 U.S.C. § 1401a(f)). The importer may also request to reverse the application of the deductive value method and the computed value method. See 19 U.S.C. § 1401a(a)(2).
Here, as noted above, there are no sales of identical or similar merchandise to the United States, which precludes the application of the methods in 19 U.S.C. § 1401a(c). Chamberlain states that it has elected to bypass the deductive value method and proceed directly to computed value, as authorized by 19 U.S.C. § 1401a(a)(2).
19 U.S.C. §1401a(e) provides the following regarding computed value:
(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 profits 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.
In its submission, Chamberlain states that certain costs incurred by the maquiladora during the government-ordered shutdown period should be excluded from the computed value calculations of merchandise produced during the first six months of 2020. The first element of computed value under 19 U.S.C. §1401a(e) is “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). Accordingly, the relevant costs or values of materials, fabrication, or processing are those that were incurred in order to produce the imported merchandise being valued. Here, however, we agree that because no production occurred during the shutdown period, the costs incurred during that time were not “employed in the production of the imported merchandise” within the meaning of 19 U.S.C. §1401a(e)(1). This is also reflected in the maquiladora’s books which, in accordance with Mexican GAAP, record the relevant expenses in an extraordinary account rather than as part of the cost of goods sold. Accordingly, we agree that Chamberlain’s computed value calculations for the first six months of 2020 should not include costs incurred during the mandatory shutdown.
HOLDING:
Chamberlain’s computed value calculation for the first six months of 2020 should not include costs incurred during a mandatory shutdown during which no merchandise was produced.
Sixty days from the date of this decision, the Office of Trade, Regulations and Rulings, will make this decision available for CBP personnel, and to the public on the CBP Home Page at http://www.cbp.gov by means of the Freedom of Information Act, and other methods of publication.
Sincerely,
Monika Brenner, Chief
Valuation and Special Programs Branch