CBP Finds Auto Parts Importer May Use Reconciliation to Adjust Value Based on Commodity Price Formula

An automotive importer may use reconciliation to adjust the value of its entries for quarterly surcharges that account for commodity prices of the metals used in imported auto parts, CBP said in a ruling issued Oct. 22. The surcharges can be included because they are calculated according to a set, non-discretionary formula, and can be linked to specific entries through the importer’s records, CBP said in ruling HQ H302879.

At issue in the ruling was one specific car part, an electromagnetic coil assembly for an automotive transfer case, made initially of steel and copper but now of steel and aluminum. The importer is related to the manufacturer in Asia, and brings in the parts based on purchase orders from the importer’s final customer in the United States.

As part of its inventory system, the importer tracks parts delivered to the final customer back through the importer’s records of deliveries from the manufacturer, CBP said. “The importer must be able to do this as part of its responsibility as a link in the automotive industry supply chain. If parts are identified as out of specification during final assembly or after sale to consumers, the importer is able to trace back parts to the manufacturing source of components to identify causes of non-conformities and assess potential liability for damages and recalls,” it said.

The price paid by the final customer includes a base amount for the steel, copper or aluminum in the electromagnetic coil assemblies. A quarterly surcharge is then applied using a set, agreed upon formula based on three commodity price indexes, including the Platts, London Metal Exchange (“LME”) Grade A Cash for copper; the Platts, London Metal Exchange (“LME”) NA Cash for aluminum; and the Scrap Price Bulletin Chicago No. 1 Bundle for steel.

The surcharge is calculated every three months at the end of each quarter, after which the importer will receive either a debit or credit from the final customer in the amount of the surcharge. The importer will then issue an invoice to the manufacturer in the same amount to reflect the debit or credit. Because of the importer’s supply chain tracking system, the debits and credits can be linked to specific entries of parts. The importer then uses reconciliation to adjust the transaction value of prior entries by the amount of surcharges calculated quarterly according to the commodity price index formula.

By law, rebates or any other decreases in the price paid or payable made after importation are disregarded in determining transaction value. But CBP has ruled that, if the decrease is calculated according to a formula that was in existence before the date of exportation, the decrease should not be disregarded, the agency said. CBP has also ruled that contractually set formulas for adjusting prices may be acceptable if they are based on a future event over which neither the seller nor buyer has any control. On the other hand, if the parties have any control over the adjusted price, the adjusted price will not be accepted by CBP, it said.

Here, “the formula is based on an objective standard over which neither the importer nor the manufacturer have any control, specifically, the three commodity indexes published by a third party,” CBP said. “In addition, the importer is able to link the specific price adjustment to the relevant entry as a result of its strict recordkeeping procedures in its role as a distributor of car parts,” it said. “Accordingly, we find that the surcharge pricing formula constitutes an acceptable mechanism to determine the price actually paid or payable for the imported merchandise. Further, we find that the ACE Reconciliation Program is a proper method for adjusting the final value of the imported car parts,” CBP said.