Valuation; Negative Values

HQ H287920 August 31, 2018 OT:RR:CTF:VS H287920 YAG CATEGORY: Valuation Director, Petroleum Natural Gas and Minerals CEE 2350 N. Sam Houston Pkwy, Ste. 1000 Houston, TX 77032 RE: Valuation; Negative Values Dear Center Director: This is in response to your correspondence, dated July 3, 2017, forwarding to our office a request for internal advice, filed by Neville Peterson LLP, on behalf of their client, [***] ([***] or “the Importer”), concerning negative estimated values of imported [***] (hereinafter “the recyclable material”) declared by the Importer to U.S. Customs and Border Protection (“CBP”) at the time of entry and later reconciled under the transaction value method of appraisement. Counsel for the Importer has asked that certain information submitted in connection with this internal advice request be treated as confidential. This request for confidentiality is approved. The information contained within brackets and all attachments to this internal advice request, forwarded to our office, will not be released to the public and will be withheld from published versions of this decision. FACTS: The Importer purchases the recyclable material pursuant to contracts with [***] (“Supplier A”) and [***] (“Supplier B”). The Importer obtains the material in order to recycle and extract three metals contained therein: [***], and [***]. The contract between the Importer and Supplier A specifies that the final price between the parties is determined by application of a formula based on the fixed processing fee the Importer charges Supplier A to recycle the extracted metals minus the market values of each of the three metals [***] determined at a set date after their receipt at the Importer’s facility in the United States. Expressed on a per-unit basis, the Importer’s processing fee is approximately $[***] per pound of the recyclable material. The Importer claims that while transaction value is the appropriate method of appraisement for Supplier A transactions, the price actually paid or payable it not known at the time of entry. In fact, the actual price of the imported recyclable material cannot be determined until more than one month after the Importer receives and analyzes the recyclable material in the United States. As a result, the Importer flags its entries of recyclable material for reconciliation and declares an estimated value in its entry documents until the actual value is determined pursuant to the formula outlined above. The estimated value that the Importer has typically declared for its entries of recyclable material has been the average of the actual transaction values, determined after importation by applying the applicable contractual pricing formula, for shipments during the most recent calendar quarter for which those final values have been calculated, less a fluctuation adjustment. Thus, this estimated value is based on prior transactions. The pricing methodology with Supplier B has the same structure as the pricing methodology in the Importer’s contract with Supplier A. The Importer states that in the past few years market values of the three metals contained in the recyclable material declined dramatically. The values got so low that when the Importer applied its valuation formula to derive values, the value of the processing fee far exceeded the value of the metals, resulting in negative values for the applicable entries. Therefore, the Importer argues that the appropriate method in these circumstances is to declare, as the entered value for its flagged entries of the imported recyclable material, the last positive value until the application of its normal valuation formula yields a positive value. In other words, rather than calculate the last positive value on a per-unit basis using the average for the most recent quarter in which the normal valuation formula resulted in a positive value, the Importer will declare the last positive value as the per-unit value based on the average for the most recent month in which the application of the formula resulted in a positive value. The last positive value calculated using the Importer’s methodology was approximately $[***] per pound. According to the Importer, this value reflects actual, recent transactions of the metals valued at market values, net the Importer’s processing fee. ISSUE: What is the reasonable estimated value the Importer may declare at the time of entry? 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). Although the Importer states that the price actually paid or payable of imported recyclable materials is not known at the time of importation, the Importer claims that the application of transaction value method of appraisement is appropriate as it is based on the calculation of the final price of the recyclable material that results in a positive value. Provided there is a bona fide sale for export, we note that transaction value may be appropriate because there is an existing formula established by a contractual arrangement between the parties prior to importation such that a final price can be determined at a later time on the basis of some future event or occurrence over which neither the seller nor the buyer has any control. See HQ 545622, dated April 28, 1994; and HQ H116940, dated February 25, 2011.  The issue concerns the estimated value of the imported recyclable material declared upon entry and later reconciled under the transaction value method of appraisement. The Importer states that due to market conditions, the values of the metal contained in the imported recyclable material has dropped, resulting in negative values for the applicable entries under the valuation formula referenced in the Importer’s contracts with Suppliers A and B. Therefore, the Importer argues that the appropriate method in these circumstances is to declare the last estimated positive value until the application of its normal valuation formula yields a positive value. The Importer proposes to declare the last positive value as the per-unit value based on the average for the most recent month, in the amount of $[***] per pound. In HQ H251593, dated October 9, 2014, CBP concluded that imported scrap material should be valued using the fallback method based on the value of the precious metal obtained after processing the imported scrap in the United States, as determined by its price on a metals 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. CBP further 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. See also HQ H287885, dated October 18, 2017. Moreover, in HQ H251593, CBP specifically addressed the situation relevant to this case with respect to negative values. CBP opined that in rare instances where the cost of processing the scrap materials exceeds the value of the precious metals obtained, because the imported merchandise has no real commercial value at the time it is imported, the imported scrap material should be appraised based on the cost of the fees that the importer charges its customer to do the processing to recover the precious metal. The Importer claims that it cannot use its processing fee as the basis of appraisement for the following reasons: (1) the processing fee is far removed from the commercial reality of the Importer’s transactions; (2) the processing fee is a confidential commercial term established with the Importer’s exporters, and public disclosure of such term would put the Importer at a competitive disadvantage; and, (3) using the processing fee would in effect treat the post-importation processing and engineering work covered by the fee as a dutiable assist. We find the Importer’s arguments unpersuasive. HQ H251593 is similar to the situation at hand, and we are unable to find a meaningful distinction between this case and HQ H251593. Accordingly, if the cost of processing the recyclable material exceeds the value of the precious metals obtained, resulting in a negative value, the estimated value should be declared based on the processing fee of approximately $[***] per pound of the recyclable material that the Importer charges Supplier A and Supplier B to recover the metals until such time the Importer is able to apply its formula to derive the positive value for prior transactions. Additionally, if the reconciliation of the final price of the recyclable material does not result in a positive value under the transaction value method of appraisment, the imported recyclable material should be appraised under the fallback method of appraisement based on the processing fee, pursuant to HQ H251593. HOLDING: The Importer should declare the estimated value of the recyclable material based on the processing fee that the Importer charges Suppliers A and B to recover the metals until such time the Importer is able to apply its formula to derive a positive value. If the application of the formula does not result in a positive final value of the imported merchandise under reconciliation, the recyclable material should be appraised under the fallback method based on the processing fee. This decision should be mailed by your office to the party requesting Internal Advice no later than 60 days from the date of this letter. On that date, Regulations and Rulings, Office of Trade, will make the decision available to CBP personnel and the public at www.cbp.gov, by means of the Freedom of Information Act and other methods of public distribution. Sincerely, Monika R. Brenner, Chief Valuation & Special Programs Branch