CBP Ruling Allows 'Fallback' Valuation of Used Engine Parts Imported for Remanufacture

The ruling was in response to a request for a ruling by INNIO Waukesha Gas Engines Inc. on the proper appraisement method of using engine parts that the company planned to import for remanufacturing. When INNIO sells a remanufactured part to a foreign distributor, the price includes a “core deposit," which is generally an additional charge incorporated into the price of a remanufactured good. Once a "core" (the primary component input for remanufactured goods) is returned to the remanufacturer, the deposit is credited back to the customer that returned the core.

INNIO says the system encourages core returns to ensure a reliable source of core supply. 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. The amount of the core deposit is "roughly equal to the difference in price between a new part and a remanufactured part," CBP said in the ruling. The amount exceeds the market value of the core and helps to ensure that the customer will return the used part.

CBP has previously held that the return of a core deposit is not a “sale” for purposes of customs valuation. 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.

CBP found that it was unlikely that INNIO would have access to actual appraised entries of merchandise that are similar to the cores imported for repair, so the transaction value of identical or similar merchandise is unavailable. The deductive valuation method is also unavailable because the merchandise will be resold after remanufacturing operations and not in conditions as imported. Computed value is inapplicable because INNIO does not have historical data relating to the material or processing costs, or profit and expenses associated with the production of the parts. Even if the information were available, it would reflect the value of the goods when they were initially manufactured.

Because none of the more preferred methods of valuation are available, the used engine parts must be appraised under the “fallback method.” INNIO argued that it was appropriate under the fallback method to base the appraisement of the used parts on the sales price of the remanufactured good, with a deduction for the average cost of repair. CBP authorized a similar approach under the fallback method in a 2014 HQ ruling in which the importer operated a business repairing and overhauling turbine engines and their components, it said.