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HQ 548569

October 20, 2004

VAL RR:IT:V 548569 GG

Mr. T.W. Kennard
B.A. McKenzie & Co., Inc.
Post Office Box 1435
813 Pacific Avenue
Tacoma, Washington 98401

Dear Mr. Kennard:

This is in reference to Headquarters Ruling Letter (HQ) 543859, dated March 13, 1987, regarding the appraisement of used lacquer thinner which has been returned to the United States after being recycled in Canada. We have reviewed the ruling and find several of its conclusions regarding appraisement to be incorrect. This ruling sets forth the necessary corrections. We restrict our substantive changes to only those issues involving valuation.

Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. 1625(c)(1)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057), a notice was published on August 18, 2004, in Vol. 38, No. 34 of the Customs Bulletin, proposing to modify HQ 543859. No comments were received in response to this notice.

The facts as set forth in HQ 543859 are, in part, as follows:

You state that waste used lacquer thinner is acquired from various auto body paint shops where it has utilized to clean paint from articles. The approximate composition of the solvent is toluene 50%, methanol 40%, and methyl ethyl ketone 10%. The recycler charges a fee for the removal of the impurities and there is no market in Canada for the purified solvent.

We were of the opinion that the waste lacquer thinner had been advanced in value and improved in condition by the recycling abroad and, therefore, the classification of the returned product under item 800.00 Tariff Schedule of the United States (TSUS), is precluded. The processing in Canada is too extensive to be considered an alteration under the provisions of item 806.20, TSUS. Accordingly, the returned lacquer thinner would probably be dutiable upon the total quantity and
full value of the chemical mixture under item 432.28, TSUS, at the rate of 18.2 percent ad valorem.

In HQ 543859, the U.S. Customs Service (now known as U.S. Customs and Border Protection (“CBP”)) also concluded that the returned solvent would be appraised on the basis of transaction value, pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”). Specifically, the ruling provided that transaction value would be represented by the amount actually paid or payable to the Canadian recycler plus the value, as an assist, of the used solvent that is shipped to the recycler. It further provided that if the solvent was acquired free of charge, then the value of the assist would consist of the freight and related costs involved in transporting the used solvent to the recycling facility in Canada.

Upon reconsideration, CBP now finds that its decisions as to the appraisement method and the characterization of the used solvent as an assist, were not entirely correct. In making this determination, CBP has focused on several aspects of the transaction. Specifically, in the ruling request it was emphasized that the company that acquires and ships the used solvent to Canada for recycling owns the solvent, and that the recycler simply works on a fee basis. It was also stated that the recycled solvent will either be returned to the owner in the United States, or shipped directly to a U.S. located consumer. To the best of the owner’s knowledge, no similar product is imported into the United States.

In HQ 543859, Customs held that the purified lacquer thinner would be appraised under transaction value. Transaction value, the preferred method of appraisement, is defined as the price actually paid or payable when the merchandise is sold for exportation to the United States. See Section 402(b), TAA. On the basis of the information provided, it appears as though there may be a valid transaction value in those instances when a sale is made to a U.S. customer while the lacquer thinner is still located in Canada. This is because there would have been a “sale for exportation” to the United States. However, no transaction value exists when the recycled lacquer thinner is simply returned to the owner without being subject to a sale. In such cases, an alternative appraisement method must be used.

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 preference, are: the transaction value of identical merchandise; the transaction value of similar merchandise; deductive value; and computed value. If the value of imported merchandise cannot be determined under these methods, then resort must be made to the “fallback” valuation method of section 402(f) of the TAA.

The ruling request indicated an absence of sales of similar merchandise. By implication, this means that there are probably no sales of identical merchandise, either. Consequently, transaction values of identical and similar merchandise are not available as appraisement methods. It is possible that there may be a deductive value, if the recycled lacquer thinner is sold domestically within 90 days of importation. Although the ruling request suggests that the computed value of appraisement would be applicable, we note that the owner and the recycler disclaim any relationship. The absence of a relationship usually precludes the use of computed value due to the difficulty in obtaining the producer information necessary to validate a computed value. In some cases the recycled lacquer thinner may have to be appraised under the “fallback” valuation method.

Finally, we wish to reassess the characterization in HQ 543859 of the used lacquer thinner as an assist. Section 402(h)(1)(A) of the TAA defines assists in the following manner:

The term “assist” means any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or sale for export to the United States of the merchandise:

Materials, components, parts, and similar items incorporated in the imported merchandise. Tools, dies, molds, and similar items used in the production of the imported merchandise. Merchandise consumed in the production of the imported merchandise. Engineering, development, artwork, design work, and plans and sketches that are undertaken elsewhere than in the United States and are necessary for the production of the imported merchandise.

The used lacquer thinner that was sent to Canada falls within none of the above categories. It quite clearly is neither a tool, die or mold that is used in the production of the imported merchandise, nor is it engineering, development, artwork, design work etc. that is necessary for the production of the imported merchandise. The used lacquer thinner also is not a material, component, part or similar item that is incorporated in the imported merchandise, because it is the imported merchandise, albeit in an unpurified state. This holds true notwithstanding the fact that as a result of the purification process the used lacquer thinner was advanced in value and improved in condition. Finally, the used lacquer thinner is merely recycled in Canada and thus is not “consumed in the production of the imported merchandise.” For these reasons, we hereby modify HQ 543859, revoking that aspect of the ruling that held the used lacquer thinner to be an assist.


HQ 543859, dated March 13, 1987, is modified. In accordance with 19 U.S.C. § 1625(c), this ruling will become effective sixty (60) days after publication in the Customs Bulletin.


Virginia L. Brown

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