Fallback Valuation Methods Usable for Repaired/Refurbished Goods, CBP HQ Says

An importer can use fallback methods of valuation for replacement parts or refurbished items when it reasonably does not have access to pricing information, CBP headquarters said in a recently released ruling. In HQ H321592, dated Feb. 4 and publicly released June 6, CBP ruled that used goods returned to the U.S. after undergoing repairs abroad can be appraised using straight-line depreciation and cost of repairs and that replacement goods imported into the U.S. pursuant to a warranty claim can be appraised using the transaction value of similar new goods.

The items at issue are measuring instruments manufactured by Hottinger Bruel & Kjaer (HBK). The company maintains manufacturing facilities in the U.K., Denmark, Germany, Portugal and China, as well as a small facility in the U.S. The company's policy is generally to repair and refurbish returned items at the facility of original manufacture, meaning most items returned by U.S. customers are sent abroad and then returned. The company asked CBP for a binding ruling as to how those goods should be appraised upon return to the U.S.

CBP noted that for items repaired abroad, U.S. customers retain the title and ownership of the goods, so no “sale” occurs and transaction valuation is inapplicable. The first alternative basis of appraisement is the transaction value of identical or similar merchandise. In this case, HBK affiliates don't sell similar repaired merchandise to U.S. customers, so no similar merchandise existed. The deductive value method is also inapplicable because HBK doesn't obtain title or ownership of the goods and thus cannot sell the goods and there are no resales of the used goods in the U.S. The computed value method is also inapplicable because there is no available information on "material and processing costs incurred in the production" of the merchandise.

When the value of imported merchandise cannot be determined under the previous methods, it may be appraised using the "fallback method" on the basis of a value derived from one of those methods, CBP said. In previous rulings, CBP has ruled that refurbished mobile phones returned from Mexico could be appraised using either book values or price quotes by reputable U.S. resellers of refurbished phones, and that hard drive disks returned to the U.S. after undergoing refurbishment in Malaysia could be appraised using the value of the merchandise on the importer’s books, the agency said. CBP has also ruled that returned aircraft parts without pricing information could be valued by using the export value of the original part or an identical or similar new part, adjusted to account for the estimated foreign repair cost. In that ruling, CBP noted the parts would be appraised at a value essentially equivalent to that of a new part.

HBK was unable to provide information about the book values because the unrelated U.S. customers, rather than HBK, carry the merchandise on their books. No information was provided about whether identical or similar refurbished merchandise is resold in the U.S. and at what price. HBK's proposal was to appraise the merchandise on the basis of the value of the goods in their condition as exported, plus the actual costs of repair or calibration. CBP found that the proposed methodology is reasonable "because the repairs or calibration do not necessarily return the merchandise to like-new condition or restore its useful life to that of a new good."

In the instance of replacement goods, HBK said foreign affiliates will replace the good with either a new or a used good from their own inventories. Transaction value was inapplicable because neither HBK nor its U.S. customers purchase the goods from the foreign affiliate, which sends the replacements for free pursuant to the warranty without an applicable "sale."

HBK said it regularly purchases identical merchandise from its foreign affiliates and proposed the transaction value in those sales can be used as a basis to appraise the replacement goods. Normally, this valuation would be further scrutinized because the buyer and seller are related parties. However, CBP ruled the core issue wasn't whether the transaction value was acceptable in the previous transactions, but whether those transactions can be used as a basis of appraisement for replacement goods. CBP concluded the values in related-party transactions between HBK and its foreign affiliate are an acceptable measure and agreed that the used goods are sufficiently similar to the new goods for valuation purposes.