HQ 0544421 - Applicability of Transaction Value to an Assembly Operation and Dutiability of Assists - United States International Trade Commision Rulings

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 0544283 - HQ 0554945 > HQ 0544421

HQ 544421

April 3, 1990

VAL CO:R:C:V 544421 VLB

CATEGORY: VALUATION

Nancy J. Wollin, Esquire
Sandler, Travis & Rosenberg, P.A.
Rivergate Plaza
444 Brickell Avenue
Miami, Florida 33131-2470

RE: Applicability of Transaction Value to an Assembly Operation and Dutiability of Assists

Dear Ms. Wollin:

This is in response to your letter dated November 21, 1989, requesting a ruling on a proposed arrangement involving your client, -----------------, a British Virgin Islands corporation.

FACTS:

You state that the British Virgin Islands corporation (hereinafter referred to as the "importer") will act as importer of record for garments imported into the U.S. under the "9802 (807) program". The garments will be assembled in several factories located in Haiti and the Dominican Republic from U.S. components provided by the importer and/or the importer's U.S. company.

You further explain that the importer is related to some of the assemblers as defined in section 402(g) of the Tariff Act of 1930, as amended by the Trade Agreements Act 1979 (19 U.S.C. 1401a(g); TAA). Notwithstanding this fact, you state that the importer proposes that the garments will be appraised under transaction value.

The importer plans to arrange for warehousing and distribution of the imported merchandise in the U.S. You indicate that the purpose of these activities will be to facilitate the storage and transportation of both component parts to be used in the assembly operations as well as the imported assembled garments. You state that any warehousing and distribution services performed by the importer that are incidental to the transportation of the "807" components to the place of manufacture will be included in the value of the imported merchandise as an assist. We assume that the importer will be able to identify, if requested, those costs or charges that relate to the component parts.

You further explain that the importer will employ managerial personnel who will serve as plant managers and quality control supervisors. These people will supervise the factory operations to insure that the importer's specifications are being complied with and that the factories operate efficiently. In addition, the importer will also provide a supervisor engineer who will provide secondary supervision and training for mechanics and their direct supervisors. Finally, the importer will provide trainers for on-line assembly personnel.

The salaries for these management personnel will be paid by the importer and will be reflected on the importer's books. You indicate that the importer may also provide automobiles and housing for these personnel, who will be citizens and domiciliaries of the countries where the factories are located.

Lastly, you explain that the importer may also provide equipment, supplies, and services to the assembly plants including emergency generators, power transformers, air conditioning equipment, telephone and telecopier equipment, office supplies, kitchen equipment and supplies, the services of a cook, infirmary supplies and doctor services, accounting services, and legal services. The expense of each of these items will be reflected on the importer's books.

ISSUES:

1) Whether the British Virgin Islands corporation can act as the importer of record for the prospective transactions.

2) Whether the sales price between the foreign manufacturers and the importer for the imported merchandise is an acceptable transaction value.

3) Whether the items that the importer is supplying to the manufacturers are to be included in the dutiable value of the imported merchandise.

LAW AND ANALYSIS:

The first issue involves whether a foreign corporation may enter merchandise into the U.S. Under 19 U.S.C. section 1484, only the owner or purchaser of the imported merchandise, or alternatively, a licensed customshouse broker appointed by the owner, purchaser, or consignee of the merchandise can serve as an importer of record.

In addition, under 19 CFR 141.18 a nonresident corporation cannot enter merchandise for consumption unless it a) has a resident agent in the State where the port of entry is located who is authorized to accept service of process against such corporation; and b) files a bond on Customs Form 301, containing the bond conditions set forth in 19 CFR 113.62, having a resident corporate surety to secure the payment of any increased and additional duties which may be found due.

You state that the British Virgin Islands corporation will fulfill the requirements set forth in 19 CFR 141.18. Assuming that the corporation does meet these requirements as well as the importer of record requirements set forth in 19 U.S.C. section 1484, then the corporation can act as importer of record in the prospective transactions.

The second issue involves the applicability of transaction value. As you know, transaction value, the preferred method of appraisement is defined in section 402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(b); TAA) as the "price actually paid or payable for the merchandise" plus five enumerated statutory additions.

One of the statutory additions is "the value , apportioned as appropriate, of any assist. . . ." The term "assist" is defined in section 402(h) of the TAA as follows:
any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise:

(i) Materials, components, parts, and similar items incorporated in the imported merchandise.

(ii) Tools, dies, molds, and similar items used in the production of the imported merchandise.

(iii) Merchandise consumed in the production of the imported merchandise.

(iv) Engineering, development, artwork, design work, and plans and sketches that are undertaken elsewhere than in the United
States and are necessary for the production of the imported merchandise.

You have stated that in the related party transactions, "the importer will be prepared to 'provide information showing that the price is adequate to ensure recovery of all costs plus a profit that is equal to the firm's overall profit realized over a representative period of time in sales of merchandise of the same class or kind' in order to demonstrate that the price has not been influenced."

The determination that the price actually paid or payable is not influenced by the relationship between a related buyer and seller is made on a case-by-case basis. For purposes of this ruling, we are assuming that transaction value is the applicable appraisement method for both the related and unrelated party transactions. However, when the importations begin, the Customs Import Specialist reviewing the entries can request proof that the proposed transaction values in the related party transactions are acceptable under one of the statutory tests.

The third issue involves whether the services, personnel, and articles that the importer will furnish free of charge to the manufacturer are assists. Specifically, as stated previously, the importer will employ plant managers, quality control supervisors and a supervisory engineer to supervise the factory operations and to provide secondary supervision and training, respectively. The importer will pay these individuals' salaries, and the payments will be carried on the importer's books.

You contend that the services rendered by the described personnel do not fall within one of the assist categories. Therefore, the services do not constitute dutiable assists. You reference Headquarters Letter Ruling (HRL) 542122 (cited as TAA #4), dated September 4, 1980, to support your position that the management services are not dutiable assists.

Generally, Customs has held that management services are not considered to be assists. See, HRL 543992, dated September 10, 1987 and HRL 543820, dated December 22, 1986. The services that the importer's employees are providing to the manufacturers are analogous to the services described in these rulings. Based on those rulings, we hold that the salaries for the importer's described management and supervisory personnel are not assists within the meaning of section 402(h)(1)(A) of the TAA.

Finally, you state that the importer will be providing additional enumerated services to the manufacturers as well as specified supplies and equipment.

Customs held in HRL 542122 (TAA #4) that accounting services and legal services are not assists under section 402(h)(1)(A) of the TAA. As a result, in the present case, these services will not be includable in the transaction value of the imported merchandise. Moreover, the cooking and medical services also do not fall under one of the four categories of assists. Thus, these services are also not includable in the transaction value of the imported merchandise.

Further, you cite HRL 542302 (TAA #18), dated February 27, 1981, to support your contention that the enumerated equipment does not constitute an assist. In TAA #18, Customs held that telephone switching equipment, emergency generators, air conditioning equipment, and power transformers were not used in the production of the imported merchandise. Therefore, the equipment was not considered to be an assist.

The equipment that you have described appears to be the same type of non-production equipment discussed in TAA #18. Based on TAA #18, we hold that the non-production equipment that you delineated is not included within the definition of an assist; and the value of the equipment should not be included in the transaction value of the imported merchandise.

HOLDINGS:

1) The British Virgin Islands corporation may serve as importer of record for the proposed transactions if it meets the requirements set out in 19 U.S.C. section 1484 and 19 CFR 141.18.

2) Transaction value appears to be the proper method of appraisement for the unrelated transactions. However, in the related party transactions the Customs Import Specialist reviewing the entries must make the determination on whether the proposed transaction values are acceptable under one of the statutory tests.

3) The enumerated services and equipment appear to be non- production types of items. Therefore, the services and equipment would not fall under one of the four categories of assists.

Sincerely,

John Durant, Director,
Commercial Rulings Division

Previous Ruling Next Ruling