United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1990 HQ Rulings > HQ 0220042 - HQ 0544048 > HQ 0543947

Previous Ruling Next Ruling


HQ 543947


June 17, 1988

CLA-2 CO:R:C:V 543947 CW

CATEGORY: CLASSIFICATION VALUATION

TARIFF NO.: 807.00, TSUS (9802.00.80, HTSUSA)

District Director of Customs
Detroit, Michigan 48226

RE: Application for Further Review of Protest No. 3801-5-001295, contesting your denial of a deduction under item 807.00, TSUS, for the value of U.S. engineering and design work.

Dear Sir:

The above-referenced protest concerns the applicability of the partial exemption from duty provided for by item 807.00, Tariff Schedules of the United States (TSUS), to certain U.S. engineering and design work utilized by the Canadian assembler in the assembly of the imported Seven Station Dial Index Machine. Although your office originally disallowed item 807.00, TSUS, treatment for the imported machine, we understand that additional documentation received from the importer (and protestant), Tri- Way Machine, Ltd., has persuaded your office that classification of the machine under item 807.00, TSUS, is warranted.

FACTS:

The record reflects that the buyer of the imported machine, Tri-Way Machine, Inc. of Troy, Michigan ("buyer"), provided certain U.S.-made components free of charge to the Canadian assembler, Tri-Way Machine, Ltd. ("assembler"). The assembler purchased certain additional U.S.-made components as well as engineering prints, diagrams and data from other U.S. sources. The invoice price from the assembler to the buyer for the imported machine included the cost of the assembly operation (plus profit) and the value of the U.S. components and U.S. engineering services purchased by the assembler.

Protestant maintains that the deduction under item 807.00, TSUS, for the value of the U.S. components assembled into the imported machine should include the cost of the U.S. engineering services. The protest states the following regarding this claim:

The engineering prints, diagrams, and data produced in the United States are viable articles used in the production of the merchandise and become the property of the buyer in the same manner as that of the other U.S. sourced articles used in assembly.

In the opinion of your office, the item 807.00, TSUS, exemption from duty does not apply to the cost of U.S. engineering and design work utilized in the assembly process since prints, diagrams and similar data are not "fabricated components," as that term is defined in section 10.12(d) of the Customs Regulations.

ISSUE:

Whether the deduction under item 807.00, TSUS (subheading 9802.00.80, Harmonized Tariff Schedule of the United States Annotated (HTSUSA)), for the value of U.S. fabricated components includes the cost of U.S. engineering and design work utilized in the assembly operation.

LAW AND ANALYSIS:

The partial exemption from duty provided for in item 807.00, TSUS, applies to articles assembled abroad in whole or in part of fabricated components of U.S. origin. An article classified under item 807.00, TSUS, is subject to duty upon the full appraised value of the imported article, less the cost or value of the U.S. fabricated components.

The term "fabricated component" is defined in section 10.12(d), Customs Regulations, as "a manufactured article ready for assembly in the condition as exported except for operations incidental to the assembly." The term "assembly," as used in item 807.00, TSUS, contemplates the joining or fitting together of solid components (see section 10.16, Customs Regulations). In view of these provisions, it is clear that the U.S. prints, diagrams, and data purchased by the assember in this case are not fabricated components which are assembled into the imported merchandise. Moreover, the cost of the engineering and design work may not be included in the value of the U.S. fabricated components assembled in Canada in light of section 10.17, Customs Regulations. That section generally provides that the value of the U.S. components subject to the item 807.00, TSUS, exemption shall be their cost when last purchased, f.o.b. U.S. port of exportation, or, if no purchase was made, the value of the components at the time of their shipment for exportation from the U.S.

You point out that an issue indirectly raised by the protest (although not specifically discussed by the protestant) concerns whether the cost of the U.S. engineering and design work involved in this case is properly included as part of the transaction value of the imported machine. In this regard, section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), provides that transaction value consists of the price actually paid or payable for the merchandise, plus amounts for certain specified items to the extent that those amounts are not already included in that price. One of these items is the value of any assist. Section 402(h)(1)(A) of the TAA indicates that engineering and design work provided free of charge or at reduced cost by the buyer shall be added to the price actually paid or payable as an assist if such work is undertaken outside the U.S. Thus, engineering and design work undertaken in the U.S. and provided free of charge or at reduced cost by the buyer is not considered an assist and its value will not be added to the price actually paid or payable for the imported merchandise.

However, because the engineering and design work involved in this case was not provided free of charge or at reduced cost by the buyer, the question of whether this work constitutes a dutiable assist does not arise. The engineering and design work in question was purchased by the assembler from a third party and its cost was included in the price actually paid or payable for the imported machine. There is no provision in the TAA which authorizes the deduction of the cost of U.S. engineering and design work from the price actually paid or payable for imported merchandise.

HOLDING:

The deduction under item 807.00, TSUS, for the value of U.S. fabricated components shall not include the cost of the U.S. prints, diagrams, and data purchased by the Canadian assembler for use in connection with the assembly of the imported machine. Moreover, under the circumstances of this case, the cost of the U.S. engineering and design work is properly part of the transaction value of the imported machine. Therefore, you are directed to deny the portion of the protest relating to the dutiability of the cost of the engineering and design work.

Sincerely,

John Durant

Previous Ruling Next Ruling

See also: