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HQ 544862

January 3, 1994

VAL CO:R:C:V 544862 ILK

CATEGORY: VALUATION

District Director
Laredo, Texas

RE: Internal Advice Request; Profits and General Expenses under

Dear Sir:

This is in response to your request for internal advice dated November 20, 1991 regarding the inclusion of a foreign assembler's general expenses in the computed value of merchandise under 402(e) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA, 19 U.S.C. 1401a(e)), which expenses occur after the goods are packed and ready for shipment to the U.S. We regret the delay in responding.

You have provided a list of expenses which were included in a foreign assembler's/manufacturer's general expenses as represented on a Customs Form 247. These expenses are identified as: salaries, salaries-overtime, freight, office supplies, office equipment, printed forms, export expenses, bond expenses, miscellaneous purchase services, vehicles, meals, non-deductible and import taxes. It is the importer's position that under 402 (e) of the TAA, these expenses are non-dutiable because the expenses apply mostly to export activities which the importer claims occur after the goods are packed and ready for shipment to the U.S.

The computed value of imported merchandise is defined in 402(e) of the TAA and includes:

(B) an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by the producers in the country of exportation for export to the United States;

Section 402(e) states:

(2) For purposes of paragraph (1)-

...

(B) the amount for profit and general expenses under paragraph (1)(B) shall be based upon the producer's profits and expenses, unless the producer's profits and expenses are inconsistent with those usually reflected in sales of merchandise that are made by producers in the country of exportation for export to the United States, in which case the amount under paragraph (1)(B) shall be based on the usual profit and general expenses of such producers in such sales, as determined from sufficient information. (emphasis added)

The Statement of Administrative Action provides that with respect to computed value:

The "amount for profit and general expenses" will be determined on the basis of information supplied by, or on behalf of, the producer and will be based upon the commercial accounts of the producer, provided that such accounts are consistent with the generally accepted accounting principles applied in the country where the goods are produced and unless the figures provided are inconsistent with those usually reflected in sales, of merchandise of the same class or kind as the imported merchandise, that are made by producers in the country of exportation for export to the United States. (Statute)

In Headquarters Ruling Letter (HRL) 544344 dated November 14, 1990, we ruled that the seller's prepaid transportation costs and expenses directly related to transporting the finished product from the loading dock of the Mexican plant to the U.S. border and carried on the books of the producer are general expenses and as such they fall within 402(e)(2)(B) of the TAA and are therefore included in the computed value of the imported merchandise.

In addition, it must be taken into consideration that the amount for profit and general expenses is taken as a whole. Customs Regulations 152.106(c) (19 CFR 152.106(c)) provide as follows:

Profit and general expenses. The amount for profit and general expenses will be taken as a whole. If the producer's profit figure is low and general expenses high, those figures taken together nevertheless may be consistent with those usually reflected in sales of merchandise of the same class or kind.

Interpretative note 2 to the regulation states that:

If the producer's own figures for profit and general expenses are not consistent with those usually reflected in sales of merchandise of the same class or kind as the merchandise being valued which are made in the country of exportation for export to the United States, the amount for profit and general expenses will be based upon reliable and quantifiable information other than that supplied by or on behalf of the producer of the merchandise.

Accordingly, regardless of what type of general expenses the foreign assembler/manufacturer has, they need to be viewed with the profit as a whole, in order to determine whether they are inconsistent with those usually reflected in sales of merchandise of the same class or kind. Thus, all of the foreign assembler/manufacturer's general expenses are to be included in calculating the "amount for profit and general expenses," unless the amount for profit and general expenses is found to be inconsistent with the amount for profit and general expenses usually reflected in sales of merchandise of the same class or kind.

If the foreign assembler's profit and general expenses are not consistent with those usually reflected in sales of merchandise of the same class or kind as the imported merchandise, that are made by producers in the country of exportation for export to the United States, then we must examine other reliable and quantifiable information regarding what is the usual profit and general expenses of such producers. In this case, there is no evidence that the "amount for profit and general expenses" that is derived from the figures on the foreign producer's books is inconsistent with the amount equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise. Thus, Customs can properly use the figures supplied by the assembler.

The Office of Regulations and Rulings will take steps to make this decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Lexis, Freedom of Information Act and other public access channels 60 days from the date of this decision.

Sincerely,

John Durant, Director

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