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HQ 544083

August 16, 1988

CLA-2 CO:R:C:V 544083 EK

CATEGORY: VALUATION

District Director of Customs
Laredo, Texas

RE: Response to Internal Advice No. 66/87

Dear Sir:

This is in response to your memorandum requesting internal advice as to the dutiability of certain equipment consigned by a domestic division of (corporation name) (hereinafter referred to as importer) to its related company in Mexico.

FACTS:

The importer states that certain equipment is consigned, free of charge, to its wholly owned subsidiary in Mexico to produce steering wheels and instrument panel pads. The equipment in question is described by the importer as follows:

1. Two different types of dryers which are used to remove excess surface moisture from vinyl resin pellets prior to being loaded into an extrusion molding machine for the production of vinyl sheets. One dryer is used to force heated air through the pellets. The second dryer uses compressed air to dry the pellets so that no moisture is present when the vinyl resin enters the extrusion mold. The vinyl sheets are later transferred to an injection mold where they are formed into an instrument panel pad

2. A high pressure washer used to wash dirt, oil, processing residues and other contaminants from IPs after their production is complete and prior to packaging and shipment.

3. A bulk storage tank used to store polyol, a liquid foam material, used in the assembly of IPs. During the manufacture
of IPs, polyol is pumped from the tank to a mold which holds the vinyl sheet in the upper portion and the insert in the lower portion.

4. Paint booths which are enclosed sheet metal structures equipped with exhaust systems which allow the IPs and steering wheels to be painted in an environment free of dust and dirt.

5. Air compressors which are used to supply compressed air at approximately 100 lbs./square inch throughout the plant. The compressed air is used to operate various machinery and equipment throughout the plant.

6. A conveyor system which is used to transport raw materials from storage areas to the first point of usage in the plant. A second conveyer is used to move the article being produced from one point in the manufacturing process to another.

The final imported product in this case is appraised pursuant to computed value, section 402(e) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(e)).

ISSUE:

Whether the machinery and equipment consigned by the importer to its wholly owned subsidiary in Mexico is properly included in the computed value of the final imported product.

LAW AND ANALYSIS:

As indicated above, the merchandise is appraised pursuant to computed value. Under computed value, the value of any assist will be added if its value is not included under section 402(e)(1)(A) or (B) of the TAA. Included in the definition of assists are "tools, dies, molds, and similar items used in the production of the imported merchandise." See, section

In TAA #18 dated February 27, 1981, equipment which was not used in the production of the imported merchandise was not considered to be an assist within the meaning of section 402(h)(1)(A)(ii). These items included telephone switching
equipment, an emergency generator, air conditioning equipment and a power transformer. This equipment was contrasted with what was called "general purpose equipment" such as sewing machines, ovens drill presses, etc., which was actually used in the production of the merchandise and held to be dutiable as assists. This position was also followed in Headquarters Ruling No. 542762 dated January 14, 1983.

With respect to the instant case, the equipment in question is not used in the actual production of the imported merchandise within the meaning of the section 402(h)(1)(A)(ii) of the TAA or the above-cited rulings.

Please note, however, that the issue of whether the items are assists is secondary to the question of whether the equipment should be included under computed value as the "cost or value of the materials and the fabrication and other processing of any kind employed in the production of the imported merchandise" or "an amount for profit and general expenses . . . made by the producers in the country of exportation for export to the United States." See, section 402(e)(1)(A) and (B) of the TAA. If, in accordance with generally accepted accounting principles of the country of production or exportation, the costs of this equipment should be reflected in the books of the foreign assembler as processing costs, then it may be that the costs are to be included in determining the computed value of the final imported product. See, TAA #9 dated October 15, 1980.

HOLDING:

In view of the foregoing, the equipment in question is not encompassed by the definition of assists in section 402(h)(1)(A)(ii) of the TAA. The issue regarding whether the costs are to be included in the computed value of the final imported product must be determined according to generally accepted accounting principles.

Sincerely,

John Durant, Director,

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