Mexican Factory Can Exclude Pandemic Shutdown Costs From Computed Value, CBP Says

A Mexican factory that was shut down by the government doesn't need to include costs incurred during the time it was inoperative in the parent company's computed value calculations, CBP said in a newly released Jan. 7 ruling. The facility, which is owned by Chamberlain, was shut down in March 2020 by state authorities in Sonora, Mexico, as part of an emergency decree closing all nonessential businesses in response to COVID-19. CBP's ruling hinged on the fact that the costs incurred during the time of the government-mandated shutdown were "not employed in the production of the imported merchandise."

The company "typically enters its merchandise using estimated computed values based on historical and projected cost data," CBP said. "At the end of the relevant accounting period, Chamberlain closes its books, compares its actual data to the estimates, and files a reconciliation entry to adjust its entered values to the correct computed value." During the six-month shutdown of the factory no merchandise was produced, though it "continued to incur many of its usual costs," it said. "For example, it kept all its production workers on full salary and continued to pay various overhead costs such as taxes, insurance, security costs, and utilities."

The first element of computed value is “the cost or value of the materials and the fabrication and other processing of any kind employed in the production of the imported merchandise,” the agency said. CBP noted that, the relevant costs are those that were incurred in order to produce the imported merchandise being valued, but because no production occurred during the shutdown period, the costs weren't “employed in the production of the imported merchandise” within the meaning of 19 U.S.C. §1401a(e)(1), it said. As a result, "Chamberlain’s computed value calculation for the first six months of 2020 should not include costs incurred during a mandatory shutdown during which no merchandise was produced."

Through the ruling, CBP "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," law firm Neville Peterson said in a blog post. "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."