H320981

HQ H320981 September 29, 2022 OT:RR:CTF:VS H320981 RMC CATEGORY: Valuation Brett Ian Harris Roll & Harris LLP 2001 L St. NW, Suite 500 Washington, DC 20036 RE: Valuation of Used Engine Parts Imported for Remanufacture Dear Mr. Harris: This is in response to your letter, dated September 16, 2021, on behalf of INNIO Waukeska Gas Engines Inc. (“INNIO”). In your letter, you request a binding ruling pursuant to 19 C.F.R. Part 177 on the proper method of appraisement of used engine parts that INNIO plans to import into the United States for remanufacturing. You have asked that certain information submitted in connection with this ruling request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets and all attachments to this ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this decision. FACTS: INNIO is an energy solution and service provider of gas engines and power equipment located in Waukesha, Wisconsin. The company produces industrial gas engines that generate between 200 kilowatts and 10 megawatts of power for numerous industries worldwide. As part of its business practices, INNIO offers its customers the opportunity to buy both new and remanufactured engine parts. At issue here are the remanufactured engine parts. When INNIO sells a remanufactured part to a foreign distributor, the price includes a “core deposit.” As explained in the U.S. International Trade Commission Publication No. 4356 “Remanufactured Goods: An Overview of the U.S. and Global Industries, Markets, and Trade” (October 2012), a “core deposit” is: Generally, an additional charge incorporated into the price of a remanufactured good. Once a core (see below) is returned to the remanufacturer, the deposit is credited back to the customer that returned the core (also known as a transaction on an “exchange basis.”) Such a system encourages core returns to ensure an adequate and reliable source of core supply. A “core” refers to “used goods that are the primary component input for remanufactured goods. Typically, these goods are at the end of their useful life.” See id. Here, the used engine parts subject to the core exchange program include head assemblies, pump assemblies, housings, oil pans, gears, crankshaft pulleys, wastegate regulators, actuators, carburetors, flywheel assembles, crankshafts, crankcases, manifold exhaust assembles, connecting rods rocker arm shaft assemblies, cylinder heads, and camshafts. According to the information provided, the amount of the core deposit is roughly equal to the difference in price between a new part and a remanufactured part. Although this amount exceeds the fair market value of the core, it helps to ensure that the customer will return the used part when it is taken out of service. The following sample transaction between INNIO and a Canadian distributor demonstrates how the core deposit program works. An invoice issued by INNIO on May 21, 2021, lists the purchase price for a remanufactured actuator as $[ ]. The $[ ] “core charge” for this item is separately listed on the invoice. The Canadian distributor subsequently sold the remanufactured actuator to a customer at a price that included the $[ ] core deposit. Once the remanufactured actuator reached the end of its useful life, the customer returned the core to the Canadian distributor, which refunded the $[ ] core deposit to the customer. On November 30, 2021, once the foreign distributor had returned the core to INNIO in the United States, INNIO issued a credit memo for $[ ] to refund the entirety of the core deposit to the distributor. This ruling request concerns the proper way for INNIO to appraise the remanufactured goods when it imports them into the United States. In general, once used remanufactured goods have been imported into the United States, INNIO disassembles and cleans them to determine which items are salvageable. Those which are incapable of remanufacture are scrapped, while salvageable parts are machined, assembled with new components, tested, packaged, and shipped to a parts warehouse for future order fulfillment. You state that INNIO’s enterprise resource planning system contains information on the average repair for each item imported (i.e., the cost for parts and labor to remanufacture the used good) and propose to appraise the merchandise under the fallback method by subtracting the average repair cost from the sales price of the remanufactured article. ISSUE: What is the proper method of appraisement for the used engine parts imported for remanufacture? 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. The transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for five enumerated statutory additions. See 19 U.S.C. § 1401a(b). 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. The U.S. Court of Appeals for the Federal Circuit has defined a “sale” as a “transfer of title from one party to another for consideration.” See VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999) citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). U.S. Customs and Border Protection (“CBP”) has held that the return of a core deposit is not a “sale” for purposes of customs valuation. In Headquarters Ruling (“HQ”) W548697 dated June 13, 2006, the importer obtained used auto parts for remanufacturing from retailers and warehouse distributors by providing a refund of a core deposit that the customers paid when the parts were originally purchased. CBP agreed that “it would be inappropriate to use a value for the used alternators and starters that incorporates the Core Charge Value.” As a result, we concluded that the refund of the core charge was not a viable sale for purposes of transaction value. Because none of the more preferred methods of valuation were available, we authorized appraised under the fallback method, using the “fair market value” method prescribed in IRS Revenue Ruling 2003-20, 2003-6 CB 445, issued January 22, 2003. Here, as in HQ W548897, the importer’s payment is not made in exchange for title to the goods. Instead, the payment is a refund of the core deposit originally paid by the foreign distributor, which is designed to incentivize the customer to return the used core at the end of its service life. Because the merchandise at issue in this case will not be subject to a sale (i.e., a transfer of title for consideration), the transaction value method will not apply. 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. 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 transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, of merchandise exported to the United States at or about the same time as that being appraised. See 19 U.S.C. § 1401a(c). Here, you state that it is unlikely that INNIO would have access to actual appraised entries of merchand

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. The transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for five enumerated statutory additions. See 19 U.S.C. § 1401a(b). 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. The U.S. Court of Appeals for the Federal Circuit has defined a “sale” as a “transfer of title from one party to another for consideration.” See VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999) citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). U.S. Customs and Border Protection (“CBP”) has held that the return of a core deposit is not a “sale” for purposes of customs valuation. In Headquarters Ruling (“HQ”) W548697 dated June 13, 2006, the importer obtained used auto parts for remanufacturing from retailers and warehouse distributors by providing a refund of a core deposit that the customers paid when the parts were originally purchased. CBP agreed that “it would be inappropriate to use a value for the used alternators and starters that incorporates the Core Charge Value.” As a result, we concluded that the refund of the core charge was not a viable sale for purposes of transaction value. Because none of the more preferred methods of valuation were available, we authorized appraised under the fallback method, using the “fair market value” method prescribed in IRS Revenue Ruling 2003-20, 2003-6 CB 445, issued January 22, 2003.Here, as in HQ W548897, the importer’s payment is not made in exchange for title to