HQ 0544624 - Dutiability of certain production and non-production machinery furnished to foreign manufacturer by importer - United States International Trade Commision Rulings

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HQ 544624

April 11, 1991

VAL CO:R:C:V 544624 DPS

CATEGORY: VALUATION

John M. Peterson, Esq.
Neville, Peterson & Williams
39 Broadway
New York, New York 10006

RE: Dutiability of certain production and non-production machinery furnished to foreign manufacturer by importer

Dear Mr. Peterson:

This is in response to your letter of December 31, 1990, requesting a ruling on behalf of Aris-Isotoner, Inc. ("Aris"). Specifically, you seek a ruling on issues similar to those addressed in Headquarters Ruling Letter (HRL) 544323, dated March 8, 1990, which concerns the dutiability of certain charges incurred by Aris with respect to the production of gloves and other merchandise by the company's foreign manufacturing affiliate, Aris (Philippines) Inc. (API). Here you request that Customs rule on the question of whether certain equipment, furnished by Aris free of charge or at reduced cost to API, constitute dutiable assists.

FACTS:

In HRL 544423 Customs ruled on the dutiability of a variety of expenses which Aris incurred relative to the production by API of certain imported gloves, slippers and similar clothing accessories. The costs involved in that ruling included salary and benefit costs paid by Aris for managerial personnel stationed at API, allocated costs of Aris' purchasing and shipping departments, payments by Aris for the warehousing and accounting of materials and supplies used in the production of imported merchandise, and export packing costs. Aris also requested, at that time, that Customs rule on the dutiability of certain equipment described as "non-production" equipment furnished by Aris to API. We declined to rule on the dutiability of those expenses because similar issues involving other non- production equipment furnished by Aris to API were the subject of litigation pending in the United States Court of International Trade, specifically, Aris-Isotoner Gloves, Inc. v. United States, CIT No. 83-06-00866. The Court of International Trade rendered its decision in the above matter on October 10, 1990, wherein it addressed the issue of treating certain "production" and "non-production" costs as assists.

In light of the recent CIT decision, Aris now seeks a ruling to the effect that the equipment described below, provided free of charge to API, not be considered assists. The equipment at issue includes the following items: dyeing machines, computer printers, ribbons, barcode readers, computer peripherals, computer diskettes and manuals, electric cementing and folding machines, laboratory supplies, tape dispensers, ceiling fans and microwave ovens.

ISSUE:

Whether or not the equipment described above, furnished by Aris free of charge or at reduced cost to API, constitute assists under section 402(h) of the TAA.

LAW AND ANALYSIS:

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.

Consistent with our previous ruling to Aris, HRL 544323, we assume that transaction value is the proper method of appraisement.

In Aris Isotoner Gloves, Inc. v United States, Slip Op. 90-103 (October 10, 1990), the court cited Texas Apparel Co. v. United States, 12 CIT , 698 F. Supp. 932 (1988), aff'd, 883 F.2d 66 (CAFC 1989), cert. denied, 110 S.Ct. 728 (1990), in recognizing the distinction between machinery which works directly on the merchandise or contributes directly to its manufacture, e.g., sewing machines, drill presses and ovens, and machinery which is not used directly in the production of merchandise itself, e.g., airconditioners and emergency generators. The court held that Aris was entitled to recovery as to the non-production machinery, which is not directly used in producing imported merchandise, while machinery used directly in the production of imported merchandise constitutes an assist under the language of 19 U.S.C. section 1401a(h)(1)(A).

In applying the court's decision to this case, we must determine whether the various pieces of equipment provided by Aris to API are considered to be production or non-production machinery. In its March 8, 1990, ruling request, Aris provided a list of the non-production equipment at issue, and briefly described each item's use.

The computer printers, ribbons, barcode readers, computer peripherals, diskettes and manuals, ceiling fan and microwave oven are described as having a general office use. The electric cementing and folding machine, and gum tape dispensers are described as having a general office and shipping department use. The laboratory supplies are stated to be used in research and testing, not merchandise production. The dyeing machines are used at the premises of an unrelated API supplier for dyeing yarn that is used in the manufacture of the subject imported merchandise.

The above listed items used for general office purposes only are not directly employed in the manufacture or production of imported merchandise. Accordingly, these items, the computer printers, ribbons, barcode readers, computer peripherals, diskettes and manuals, ceiling fans and microwave ovens should not be considered assists.

The dyeing machines, however, are used in the manufacture of the imported merchandise. The yarns from which the gloves, slippers and other clothing accessories are manufactured are dyed by these machines. Even though the dyeing operations are undertaken in a plant separate from the place of final assembly, such operations are directly employed in the production of the imported merchandise. Therefore, these items should be considered assists under section 402(h) of the TAA.

Assuming the cementing and folding machines are not utilized to pack the merchandise ready to ship for exportation to the U.S., they would not be dutiable as assists or includable in transaction value as packing costs. If they are used in the packing of the merchandise for exportation to the U.S., they should be included as part of transaction value pursuant to section 402(b)(1)(A) of the TAA as packing costs incurred by the buyer with respect to the imported merchandise.

Regarding the laboratory equipment, we are unable to render a ruling because sufficient information as to the actual equipment supplied and its particular use was not provided.

HOLDING:

Except for the limitations set forth above, the equipment having a general office use, not used in the production or packing of the subject merchandise, should not be treated as assists. The dyeing machines employed in the production of yarns used for the manufacture of the imported merchandise are to be treated as assists.

Sincerely,

John Durant, Director

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