Issue 246, February 8, 2000
Materials Scrapped or Wasted During Manufacturing are Dutiable

Two weeks ago, the U.S. Court of International Trade issued Salant Corp. v. U.S., sustaining Customs' position that the value of material supplied free or at a reduced price by an importer but scrapped or wasted during the manufacturing process to be dutiable as an assist. In that court case, bolts of free fabric were provided by the importer to manufacturers for "Cut, Make, and Trim" (CMT) of men's shirts. During the manufacturing process, scrap fabric was generated. This scrap had no residual value or use and was simply discarded. Prior to 1995, Customs had taken the position that waste created in CMT operations was nondutiable, but had formally revoked that position and set out its new one. The CIT held that the waste was actually "merchandise consumed in the production of the imported merchandise" within the meaning of the definition of assist," and thus dutiable.

What does this mean for importers? While the decision addresses the specific fact pattern arising out of CMT operations, clearly Customs could (and probably will) use this to treat any type of waste generated during any manufacturing operation as dutiable (if the waste originated from materials or merchandise provided by a buyer as an assist.) Importers involved in such operations must exercise reasonable care to ensure that these dutiable values are reported. This court case may be appealed.

Our contributing writer for "Materials Scrapped or Wasted....", F.D. "Rick" Van Arnam, is a Partner at the Customs and international trade law firm of Barnes, Richardson & Colburn in New York, and can be reached via email or at (212) 725-0200.

Please note that due to the complex nature of the subject matter, AEI cannot be responsible for actions taken by the reader in reliance on the information contained herein without prior consultation with AEI.