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Outdated Leather Sold at FMV Doesn't Count as Assist for Customs Valuation, CBP Says

Old leather sold at fair market value by a U.S. importer doesn't count as an "assist" for customs valuation purposes, CBP said in a recent ruling. CBP said the imported merchandise would only have constituted an assist if it was sold "free of charge or at reduced cost," ruling that sales made at “fair market value” are neither.

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The decision stems from a request by a U.S. leather goods importer and distributor, which asked CBP to rule on its customs valuation process for "outdated and obsolete leather." CBP said the importer typically contracts with foreign suppliers to produce leather goods, but in cases when production must be canceled and the foreign supplier can’t put the leather to “other uses,” the U.S. importer usually will buy the leather “at the cost incurred by the supplier.”

This leather is viewed as “outdated” or "obsolete" because as it ages, it “becomes less supple and less commercially valuable,” the importer told CBP. But rather than destroying the leather or selling it at “sharply reduced prices,” the U.S. importer told CBP that it wants to “repurpose” it as part of its environmental, social and governance strategy, and would instead sell the leather to U.S. suppliers at a “fair market value.” The importer would then buy the leather goods produced by the U.S. suppliers.

The importer would find the fair market value by "contacting one or more unrelated domestic third-party buyers and soliciting bids for the material,” CBP said. These bids would be used to establish a “rate card,” which would represent the "arm’s-length commodity price for a particular grade of material for a given period of time," the agency said. The importer would "periodically review" the material and update the price based on "market conditions,” CBP said.

The agency said this arrangement wouldn’t constitute an assist for purposes of customs valuation because an assist refers to goods that are "supplied directly or indirectly" by the buyer of the imported merchandise “free of charge or at reduced cost.” Since the proposed process by the importer requires outside firms to bid, and the leather would be sold to producers at a price "equal to the highest domestic bid," and the process is updated “periodically” to reflect market conditions, the materials aren't sold at reduced cost, CBP said.

CBP cited a similar ruling from 1985, which focused on a U.S. importer’s sale of old fabric to "an unrelated foreign manufacturer” to make jackets, the agency said. The sale price was determined by "soliciting offers from domestic firms" before selling the fabric to a foreign manufacturer at a price "equal to the highest domestic bid," CBP said. This also was found to not count as an assist since it was not sold at a reduced price.