Home -> Law Blog Directory -> Administrative Law Blogs -> Customs Law

Administrative Law

: Customs Law

NAFTA Ruling

I saw a couple rulings this week that I think are interesting, so I will pass them on. Plus, I feel like it's been too long since I posted and that makes me think you are all off reading some other customs blogs. I guess I am very insecure.

The first ruling is HQ H044166 (1/23/2009). This ruling raises the many perennial questions about returning used and scrapped parts from Mexico or Canada. It seems that many people make the assumption that since the used car, sewing machine, or camera lived its life in North America, that parts taken from it somehow become originating when returned to the U.S. That's not necessarily the case, although it may work out that way in the end.

In this ruling, Sony has a facility in Mexico where it repairs its consumer electronic products. Typically, Sony would scrap the defective parts in Mexico. But, California, Connecticut, Minnesota, and Michigan have laws requiring that the replaced parts be returned to the consumer. So, Sony needs to start shipping them back to the U.S. These defective parts might have a country of origin marking on them.

Sony asked a bunch of questions including: Are these parts NAFTA originating, what is the proper origin marking, how should the parts be valued, and how are they to be classified?

Regarding origin, Customs held that the defective parts, which have no value other than for the recovery of raw material, are waste and scrap not susceptible to repair. As a result, they are NAFTA originating under GN 12(n)(ix)(B).

So how is Sony supposed to mark this stuff? Because the merchandise meets the definition of "scrap" or "waste," it is wholly obtained or produced in Mexico under 19 CFR § 102.1(g). Consequently, the origin for marking purposes is also Mexico. As a bonus, "scrap and waste" is a J-list item, so the goods are exempt from marking except on the outermost containers. Customs suggested the label "Defective part processed in Mexico." But, if the part has a contrary prior marking on it, Sony is supposed to place a label over that conflicting mark.

On valuation, it is clear that there is no sale so transaction value will not apply. There was also no U.S. sale to use as a starting point for deductive value, no data on the cost of production for computed value, and no sales of similar merchandise. There was, therefore, nothing but the fallback method of valuation. Sony had accounting used data in an attempt to show that the scrap value of the parts is generally no more than 5% of the original product cost. CBP was unconvinced and suggested valuation based on the sale of similar parts to scrap dealers or the 5% methodology if Sony is able to convince the relevant port director of the accuracy of that measure.

That's it; but that's a lot. This is a comprehensive ruling that covers lots of issues. If any of my JMLS students are reading this, it sounds a lot like an exam question. Darn! Now I can't do that.

Full post as published by Customs Law on April 18, 2009 (boomark / email).