United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 2004 HQ Rulings > HQ 562825 - HQ 563026 > HQ 563026

Previous Ruling Next Ruling
HQ 563026




September 10, 2004

CLA-02 RR:CR:SM 563026 DCC

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Port Director
Port of Chicago
U.S. Customs and Border Protection
610 South Canal Street
Chicago, IL 60607

RE: Valuation of U.S.-origin lasers returned from Germany under subheading 9802.00.80, HTSUS

Dear Port Director:

This is in response to a letter from your office, forwarding a request for internal advice, dated October 29, 2003, from A.V. Reilly, International Ltd. (“A.V. Reilly”), on behalf of Leica Microsystems Inc. (“Leica”), regarding the valuation of U.S.-origin lasers under 9802.00.80, Harmonized Tariff Schedule of the United States (“HTSUS”). In addition to your letter, we received a memorandum, dated April 13, 2004, from the National Commodity Specialist Division (“NCSD”) of Customs and Border Protection (“CBP”).

FACTS:

Leica purchases confocal microscopes from Leica GmbH, an affiliated company located in Heidelberg, Germany. Leica GmbH manufactures the microscopes in Germany with lasers made in the United States. Leica GmbH purchases the lasers from five European suppliers who import them from the United States. Although Leica GmbH knows the price it pays to its suppliers for the lasers, Leica’s laser suppliers have refused to provide information regarding the U.S. laser manufacturers’ export price or production costs.

Because Leica GmbH is unable to obtain the U.S. FOB export price or production costs for the lasers, A.V. Reilly proposes to use the price Leica GmbH pays to its suppliers, minus 10 percent to 15 percent, as a basis for estimating the U.S. export price of the lasers for purposes of making a claim under subheading 9802.00.80, HTSUS. A.V. Reilly claims that this adjustment would compensate for any post U.S. export markup in the price of the lasers. In addition, two of the U.S. laser manufacturers use uniform global selling pricing policies for their products. Consequently, the retail price for these manufacturer is the same in all countries where the lasers are sold.

ISSUE:

Whether Leica GmbH’s purchase price minus 10 percent to 15 percent reflects the FOB U.S. port of export price for the U.S.-produced lasers.

LAW AND ANALYSIS:

Subheading 9802.00.80, Harmonized Tariff Schedule of the United States ("HTSUS"), provides a partial duty exemption for:
articles . . . assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating and painting.

For purposes of this letter, we assume that, as advised by CBP Port of Chicago, the three requirements of subheading 9802.00.80, HTSUS, are satisfied and that the U.S.-produced lasers may be eligible for a duty allowance. The only issue that remains to be determined concerns the appropriate value of the lasers.

An article entered under subheading 9802.00.80, HTSUS, is subject to duty upon the full value of the imported assembled article, less the cost or value of the U.S. components. The value of the U.S. components is determined according to section 10.17, Customs and Border Protection (“CBP”) Regulations (19 C.F.R. § 10.17), which provides that:

The value of fabricated components to be subtracted from the full value of the assembled article, if acquired by purchase, is the cost of the components when last purchased, f.o.b. United States port of exportation or point of border crossing as set out in the invoice and entry papers, or, if no purchase was made, the value of the components at the time of their shipment for exportation f.o.b. United States port of exportation or point of border crossing, as set out in the invoice and entry papers.

If the appraising CBP officer determines that the claimed value of the U.S. components as set out in the invoice or entry papers is not reasonable, the value of the U.S. parts may instead be determined according to the valuation hierarchy set forth in section 402 of the Tariff Act of 1930, as amended (19 U.S.C. 1401a).

In this case, Leica GmbH cannot determine the U.S. FOB port of export price paid by its unrelated German suppliers for the U.S.-origin lasers. As an alternative, A.V. Reilly proposes to estimate the value of the U.S. lasers by using the price paid by Leica GmbH to the Germany less 10 percent to 15 percent. A.V. Reilly claims that this discount would compensate for the amount of any post export markup and therefore serve as a reasonable estimate for determining the U.S. export price of the lasers for purposes of making a claim under subheading 9802.00.80, HTSUS.

Pursuant to 19 C.F.R. 10.17, the value of the U.S. lasers subtracted from the full value of the confocal microscopes is the U.S. FOB port of export price when last purchased for exportation as set forth in the invoice and entry papers. If this amount cannot be determined, the value of the U.S. parts shall instead be determined under Section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a). Section 402 enumerates a hierarchy of methods for the valuation of imported merchandise. The preferred basis of valuation is transaction value, defined as the price actually paid or payable for the merchandise. However, if the value of the merchandise cannot be determined on this basis, it must be valued in accordance with the first applicable method arrived at through a sequential application of the statutorily enumerated methods.

In Headquarters Ruling Letter (“HRL”) 559570, dated June 6, 1997, CBP reviewed the acceptability of an importer’s valuation of U.S. made components used to produce motor vehicles. In that case, the importer provided documentation, including invoices, certifications, and declarations, from U.S. trading companies and component producers that contained price information. CBP determined that these documents provided a reasonable basis for determining the FOB U.S. port of export price of the U.S. components. Significantly, the submitted documentation enabled CBP to tie particular components to certain U.S. manufacturers, and relate actual prices to components contemporaneously shipped to the foreign manufacturers.

In HRL 546336, dated September 19, 1996, CBP recognized the difficulty of tracking the cost of a specific U.S. part sent abroad to be incorporated into a finished good, especially when there is a large quantity of such parts sent abroad and returned on a continuing basis. As a result, CBP held that when it is difficult to track the cost of a specific part, CBP may accept a value determined through an appropriate methodology in lieu of a method of direct identification as a basis for the cost of a specific U.S. component. HRL 546336 also noted that the second sentence of 19 C.F.R. 10.17 should be “read to give the appraising officer the latitude to conclude that a cost or value that does not conform to the requirements of the first sentence, or previously accepted methodology, may nevertheless be reasonable, thereby avoiding the need to invoke section 402.” Furthermore, HRL 546336 noted that the price certifications and price change notices from U.S. component manufacturers would ensure that CBP obtained the lowest price from the U.S. component manufacturers.

As described above, for purposes of subheading 9802, HTSUS, the U.S. FOB export price of U.S. components must be the actual export price or determined in accordance with section 402 of the Trade Act. In addition, under limited circumstances CBP may accept alternative methodology when it is too difficult to track the prices of a large number of components sent abroad and returned to the United States. See HRL 546336. Under these limited circumstances, however, CBP should be able to substantiate the claimed value of the U.S. components with documentation from the U.S. manufacturers.

In the present case, there is insufficient information to support the use of an alternative methodology to determine the value of the U.S.-origin lasers. Although A.V. Reilly provided information about the price Leica GmbH pays to its European suppliers, these prices include a markup to cover the costs of international freight, insurance, customs duties, and the German suppliers’ profit and general expenses. There is no documentation from U.S. manufacturers such as invoices that could be used to estimate the U.S. FOB export price of the lasers.

Furthermore, unlike the situation in HRL 546336, there is no information on the record to suggest that the volume of transactions would make it exceptionally difficult for Leica to track the price of individual U.S. components. In addition, A.V. Reilly did not explain its basis for the 10 percent to 15 percent discount. There is no information to indicate that this discount is sufficient to cover any post U.S. export markup which would include the costs of international freight, insurance, customs duties, and the amount of the German suppliers’ profit and general expenses. In addition, although some of the laser manufacturers use global pricing for their products, this fact does not justify using the German suppliers’ sales price since the U.S. FOB export price paid may be much lower than the global list price for the lasers. Therefore, it is not appropriate to use Leica GmbH’s purchase price less 10 percent to 15 percent as a basis for determining the U.S. FOB port of export price for the U.S.-origin components.

Because Leica GmbH does not have access to information regarding the U.S. manufacturers’ export prices, the transaction value of the lasers cannot be determined on the basis of the price actually paid or payable. Consequently, the value of the lasers must be determined in accordance with the valuation hierarchy described in section 1401a, including the transaction value of identical or similar merchandise, followed by the deductive value, computed value, or fallback methods of valuation.

HOLDING:

Assuming the requirements of subheading 9802.00.80, HTSUS, are met and that the U.S. FOB port of export price for the lasers cannot be determined by the price actually paid for the merchandise, the value of the lasers should be determined according to the next applicable method of valuation under the hierarchy of methods set forth in 19 U.S.C. 1401a, including the transaction value of identical or similar merchandise, followed by the deductive value, computed value, or fallback methods of valuation.

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, the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP web site at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Myles B. Harmon, Director
Commercial Rulings Division

Previous Ruling Next Ruling

See also: