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HQ 555587


December 17, 1990

CLA-2 CO:R:C:V 555587 GRV/ML

CATEGORY: CLASSIFICATION VALUATION

TARIFF NO.: 9802.00.80

District Director of Customs
300 South Ferry Street
Terminal Island
San Pedro, CA 90731

RE: Application for Further Review of Protest No. 2704-86-002861, contesting the denial of TSUS item 807.00 treatment to, and reappraisement of, multiple entries of certain amplifier assemblies from Taiwan

Dear Sir:

The above-referenced protest contests your disallowance of item 807.00, Tariff Schedules of the United States (TSUS), treatment to, and reappraisement of, 44 entries of amplifier assemblies imported by Measurement Systems Division (MSD) from Taiwan during the period April, 1984, through June, 1985. In connection with this protest, we also considered an audit report (7-85-FRD-008, dated October 31, 1985) prepared by the Regulatory Audit Division, Pacific Region, concerning the transactions which are the subject of this protest.

FACTS:

MSD (hereinafter referred to as the "importer"), a subsidiary of Gould, Inc., imported transconductive amplifiers for measurement equipment from Ampex-Taiwan in Taiwan (hereinafter referred to as the "assembler"), a subsidiary of Ampex Inc., of California. The audit report states that, of the 41 component parts necessary for the assembly of each amplifier, 30 were provided to the assembler by the importer. The remaining 11 parts were obtained by the assembler from various sources unknown to the importer.

The merchandise subject to this protest was entered under TSUS item 807.00, with allowances in duty claimed for the value of all the components incorporated in the amplifiers. The entered value of the merchandise was based upon the price paid to the assembler. The entries were liquidated on April 11, 1986. In 1985, an audit was conducted by the Regulatory Audit Division, Pacific Region, to verify that the information submitted to Customs in support of these entries was current, accurate and complete. Records for the period April, 1984, through June, 1985, were reviewed and revealed an underpayment of duties for two reasons. First, it was determined that the imported amplifiers did not qualify for the partial duty exemption under TSUS item 807.00, because adequate records and documentation to substantiate the claims had not been maintained. Second, it was determined that the importer had understated the appraised value of the imports due to the failure to include the value of certain assists provided to the assembler by the importer.

Regarding the TSUS item 807.00 claims, the audit found that the importer had claimed, on each entry, that all components in the imported assemblies were manufactured in the U.S., even though only 30 of the 41 components required to assemble an amplifier unit were provided by the importer. The report also states the following:

[The importer's] officials informed us that as the stock of parts shipped to [the assembler] runs out, procurement of all or the majority of components will be made in Taiwan. Because the components are commingled, the importer cannot identify upon entry the specific components that were U.S. manufactured and entitled to item 807 treatment.

Lastly, the importer failed to submit foreign assemblers declarations. For these reasons, the report recommended the total disallowance of TSUS item 807.00 claims for the merchandise covered by the audit.

Although the audit report states that, with respect to three entries filed in October, 1984, claims for duty-free treatment were made under the Generalized System of Preferences (GSP), the importer makes no such claim in the instant protest. Therefore, as no information has been provided in support of GSP treatment for any of the entries subject to this protest, such treatment is disallowed.

Regarding the issue of assists, the audit revealed that the importer sold components to the assembler at reduced cost (49% less than the importer's cost of acquisition). In addition, the importer failed to declare certain tooling costs and a one-time engineering charge for test fixtures.

Regarding the TSUS item 807.00 claims, protestant states that it has been unable to obtain assembler's declarations from the assembler, but requests a waiver of the production of such documents pursuant to section 10.24(e), Customs Regulations (19 CFR 10.24(e)). Protestant further states inasmuch as it has certificates indicating that certain components were manufactured in the U.S., and that the quantities of these components of U.S. origin were clearly in excess of the number required to complete all the assemblies, TSUS item 807.00 treatment should be granted to those components. In addition, protestant argues that as certain other components were certified to be produced in the U.S. and were provided in quantities more than necessary for the assembly of 50% of the merchandise imported during the audit period, the partial duty exemption also should be granted for such components.

Regarding the issue of assists, protestant asserts that the components which it provided to the assembler were not purchased for sale, but rather were taken from its inventory and sold to the assembler based on the estimated aggregate cost for procuring such components on the world market. Additionally, the importer states that it did not charge the manufacturer the full cost of the components because the importer did not want to disclose its material costs to the assembler, for fear that the assembler might have sought to charge a higher price for the assembly.

ISSUES:

I. Whether the returned amplifier assemblies are entitled to the partial duty exemption under TSUS item 807.00.

II. Whether materials provided by the importer to the manufacturer were a dutiable addition to the "price actually paid or payable."

LAW AND ANALYSIS:

I. TSUS item 807.00 eligibility

TSUS item 807.00 (now subheading 9802.00.80, Harmonized Tariff Schedule of the United States) provides a partial duty exemption for:

[a]rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubricating, and painting.
An article entered under this tariff provision is subject to a duty upon the full value of the imported assembled article, less the cost or value of U.S. components meeting these requirements assembled therein, provided there has been compliance with the documentation requirements of 19 CFR 10.24.

Section 10.11, Customs Regulations (19 CFR 10.11) provides, in part, that the "[a]llowance of an importer's claim is dependent upon meeting the statutory requirements for the exemption under item 807.00 and his complying with the documentary requirements set forth in section 10.24." According to 19 CFR 10.24, an assembler's declaration shall be filed for articles claimed to be subject to the exemption under TSUS item 807.00.

With respect to protestant's request for a waiver of the documentation requirements, 19 CFR 10.24(e) provides that:

[w]hen the district director is satisfied that unusual circumstances make the production of either or both of the documents specified in paragraph (a) of this section, or of any of the information set forth therein, impractical and is further satisfied that the requirements of item 807.00, ... and related headnotes have been met, he may waive the production of such document(s) of information.

It is clear that the decision to grant a waiver rests solely with the district director and that no such waiver has been granted respecting the entries subject to this protest.

Concerning the identification of U.S.-origin components in the assembled amplifiers, in C.S.D. 82-43, 16 Cust.Bull. 748 (1982), we stated that under 19 CFR 10.24, TSUS item 807.00 allowances in duty may be granted only if the importer can demonstrate, on an entry-by-entry basis, that those components claimed to be products of the U.S. are, in fact, products of the U.S. According to 19 CFR 10.24, the importer and assembler are required to establish reliable controls, including the strict physical segregation of U.S. and foreign components and the maintenance of any other records pertaining to the U.S. components, so that the district director can identify, by audit if necessary, the specific components of U.S. origin in particular shipments which are entitled to the duty allowance. Thus, we have taken the position that various accounting procedures, such as the aggregate-quantity method or the cost- ratio method, could not be used to support a claim under this tariff provision under circumstances in which U.S. and foreign components had been commingled in the foreign assembly operation in such a way that the precise quantity and value of the U.S. components in a given shipment could not be substantiated. See also, Headquarters Ruling Letters (HRLs) 555409 dated March 12, 1990 (abstracted as C.S.D. 90-71(4), 24 Cust.Bull. ___ (1990)), and 071136 dated December 27, 1983.

Accordingly, where U.S. components which would otherwise qualify for TSUS item 807.00 treatment are commingled with foreign-sourced components, such that the importer is unable to substantiate, for each and every entry, the precise quantity and identity of the U.S. components entitled to the duty exemption, the exemption is foreclosed.

The audit revealed that, with respect to "all or a majority" of the components needed to assemble a particular amplifier, foreign-sourced components were commingled with U.S.-sourced components. Although protestant has provided certificates indicating that certain of the components provided to the assembler were manufactured in the U.S., this documentation is insufficient to establish, on an entry-by entry basis, the precise quantity and identity of the U.S.-made components incorporated in the imported amplifiers. For this reason, as well as the failure to file the required assembler's declarations, it is our opinion that the amplifiers covered by the entries subject to this protest are not entitled to the partial duty exemption under TSUS item 807.00.

II. "Assists"

The primary basis of appraisement is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)). Transaction value is defined as the "price actually paid or payable for the imported merchandise when sold for exportation to the United States," plus certain enumerated additions, one of which is the value of any assists. Section 402(h) of the TAA provides, in relevant part, that:

[t]he term "assist" means 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.

Section 402(h)(1)(C)(i) provides that the value of an assist that is available in the public domain is the cost of obtaining copies of the assist. The Statement of Administration Action further provides that:

[i]f the assist was acquired by the importer from an unrelated seller, the value of the assist is the cost of acquiring it. If the element was produced by the importer or person related to him, its value would be the cost of producing it. The value shall include transportation costs to the place of production. (emphasis added).

In the instant case, certain components were furnished by the importer to the assembler at a reduced cost. The value of the assist would be based upon the cost of acquisition since it was acquired by the importer from an unrelated seller. It is irrelevant whether the importer could have paid less or more for the assist had the importer purchased it at a later date or supplied it to the assembler as part of the importer's current inventory. It is also irrelevant what the importer's intent was for the "assist" at the time the importer acquired it. The statute clearly states that it is the cost of acquisition that will be added to the "price actually paid or payable" for the imported merchandise, plus the relevant transportation costs necessary to the place of production. Accordingly, an assist was furnished to the extent that the cost was reduced from that of the importer's actual cost.

As regards the importer's contention that additional components were supplied to the assembler in excess of that needed to assemble the imported merchandise, if this is the case, then the value of the assist may be apportioned over the quantity of the merchandise that was produced using the assist. This assumes that the importer has evidence, or records kept in accordance with generally accepted accounting principles, supporting this contention.

HOLDING:

On the basis of the record presented in this matter, it is our opinion that the amplifier assemblies do not qualify for the partial duty exemption under TSUS item 807.00 because protestant is unable to establish, on an entry-by-entry basis, the precise quantity and identity of U.S. components incorporated in the returned amplifiers.

Regarding the assists issue, it is our conclusion that the components furnished by the importer to the assembler at a reduced cost were "assists" and should be added to the "price actually paid or payable" for the imported merchandise. The value of the assists will be the difference between the cost charged to the manufacturer and the importer's cost of acquisition, plus any relevant transportation costs necessary to deliver the assists to the place of production.

Accordingly, you are directed to deny the protest in full. Please provide a copy of this decision to the protestant.

Sincerely,


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