Customs Gives Maquiladoras and Other COVID-Stricken Manufacturers a Duty Break

A recent Customs Headquarters Ruling provides a dutiable value allowance for certain manufacturers whose operations were impacted by COVID shutdowns during 2020.

In Customs Headquarters Ruling H321226 of January 7, 2022, Customs held that a manufacturer operating a Mexican maquiladora could exclude from its computed value calculations certain plant costs incurred during the period the company’s plant was subject to a government-mandated COVID shutdown.

The ruling may be of assistance to maquiladora factories in Mexico, and others whose goods are appraised on the basis of “computed value” under Section 402(e) of the Tariff Act [19 U.S.C. Section 1401a(e)]. These plants typically manufacture or assemble goods for a United States parent, but do not sell the goods “for exportation to the United States.” Instead, their goods are appraised on the basis of “computed value” a cost-based appraisement method which values goods according to the cost of materials and fabrication, plus the manufacturer’s general expenses and profit.

Companies using “computed value” generally enter goods based on estimated values, and reconcile thee values at the end of their fiscal year. For 2020, numerous manufacturers got a rude shock when their year-long costs were allocated over lower production volumes, resulting in a much higher dutiable value than they had anticipated. This is because, during several months of government-ordered plant shutdowns, they had nonetheless incurred a number of plant overhead costs, and many had paid workers even though no goods were being produced. In its new ruling, Customs indicated that if these companies had tallied these COVID-related expenses as extraordinary costs in their books, they could be excluded from the computed value calculation. Stated another way, the value calculation would not include costs incurred during a period where no production was taking place. Many affected producers may still have unresolved reconciliation entries for 2020 plant costs, and CBP’s ruling may give them a basis to seek computed value adjustments and duty refunds.

Please contact a Neville Peterson professional if you have any questions regarding this matter or any other Customs and international trade topic.