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HQ 544261

February 28, 1989

CLA-2 CO:R:C:V 544261 EK

CATEGORY: VALUATION

William F. Joffroy, Jr.
President, William F. Joffroy, Inc.
P. O. Box 698
Nogales, Arizona 85628-0698

RE: Prospective Ruling Request Regarding Dutiability of Capital Assets and Services

Dear Mr. Joffroy:

This is in response to your letter of October 27, 1988, regarding the dutiability of certain capital assets and services that your company (hereinafter referred to as importer) will be providing to its Mexican assembly plant.

FACTS:

You state that the importer will be assembling chain saws, small engines and string trimmers in Sonora, Mexico. A number of capital assets are to be sent to the Mexican assembly plant by the importer. These items include the following: hand trucks, carts, automated conveyor belt system, air compressors, battery chargers for the fork lifts, fans, drafting tables, personal computers, pallet trucks, tape dispensers, hydrometers, assembly tables, dockboards, scales, ladders, air tanks, stools, digital weight display, office equipment and work benches. You indicate that these items will be used in the shipping/receiving department, in the general offices and in the employee workstation areas.

In addition, the general manager of the Mexican assembly plant will be a U.S. citizen and will be temporarily residing in Mexico. The general manager will be employed by the importer and will receive all compensation from the importers office in the United States. You state that the general manager will be responsible for managing and directing the overall operation and will not be directly involved in the assembly operations.

ISSUE:

Whether the capital assets which the importer will provide, free of charge, to the Mexican assembler and the services of the general manager provided by the importer will be considered dutiable assists.

LAW AND ANALYSIS:

The relevant portion of section 402(h)(1)(A) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(h)(1)(A)) states the following:

The term 'assist' means any of the following if supplied directly or indirectly, and free of charge or at a reduced cost, by the buyer of importer merchandise for use in connection with the production or the sale for export to the United States of the merchandise:

. . . [t]ools, dies, molds, and similar items used in the production of the imported merchandise . . .

In order for the type of equipment which you have listed to be categorized as an assist, it must be used in the production of the imported merchandise as provided for in the statutory language cited above. In TAA #18 (Headquarters Ruling No. 542302) 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) of the TAA. These items included telephone switching equipment, an emergency generator, air conditioning equipment and a power transformer. More recently, this reasoning was applied in Headquarters Ruling No. 544083 dated August 18, 1988, with respect to merchandise which was not actually used in the production of the imported merchandise.

Although you have not described the function of each of the products, the majority of the items appear as if they are not used in the production of the merchandise. These items include: hand trucks, carts, air compressors, battery chargers for the fork lifts, fans, drafting tables, personal computers, tape dispensers, scales, ladders, stools and office equipment.

However, with respect to the automated conveyor belt system, pallet trucks, hydrometers, assembly tables, dockboards, air tanks, digital weight display and work benches, a more detailed description would be needed to determine if they are used in the production of the imported merchandise.

With respect to the cost of the services rendered by the general manager, management services as you have described are not assists as defined in section 402(h)(1)(A) of the TAA. See, Headquarters Ruling Nos. 543820 and 543877 dated December 22, 1986, and March 17, 1987, respectively.

Please note that it is not clear from the information submitted as to which method of appraisement will be utilized to value the merchandise. If the merchandise is appraised pursuant to computed value, section 402(e) of the TAA, then 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:

The majority of the items listed in your submission will not be considered dutiable assists. In the absence of more detailed information, we cannot come to a conclusion as to the automated conveyor belt system, pallet trucks, hydrometers, assembly tables, dockboards, air tanks, digital weight display and the work benches.

The cost of the services rendered by the general manager provided by the importer is not an assist within the meaning of section 402(h) of the TAA.

Sincerely,

John Durant, Director,

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