HQ 545170 - Application for Further Review of Protest No. 2604-90- 000025; testing equipment as an assist; TAA ?402(h)(1)(A) - United States International Trade Commision Rulings

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HQ 545170

October 27, 1994

VAL CO:R:C:V 545170 ILK

CATEGORY: VALUATION

District Director
Nogales, Arizona

RE: Application for Further Review of Protest No. 2604-90- 000025; testing equipment as an assist; TAA ?402(h)(1)(A)

Dear Sir:

This protest was filed against a Nogales District appraisement decision in the liquidation of assembled merchandise imported by Rockwell International (hereinafter referred to as the "protestant") from its related assembler, Rockwell Collins (hereinafter referred to as the "assembler"), in Mexico. Our decision follows a meeting on May 17, 1994 between counsel for the protestant and members of the Value Branch. We regret the delay in responding.

FACTS:

The protestant supplied the assembler with test equipment free of charge. With respect to the testing equipment which is the subject of this protest, according to the protestant's letter dated March 9, 1990, the test equipment was provided for the "sole purpose of checking the integrity and conformance to specification of the completed assemblies on behalf of the [protestant]," prior to its importation. In its letter, the protestant states that the test equipment is not required to be transferred to the books of the Mexican assembler, and the test equipment is retained on the protestant's books in the U.S. in accordance with current accounting practices.

In a subsequent submission dated December 6, 1993, the protestant provided Customs with a list of all test equipment provided to the assembler. The list includes final test equipment and in-process manufacturing test equipment, and descriptions of the functions of the final test equipment. According to the protestant's accompanying letter, the final test equipment is used "to verify the integrity of our products prior to being imported into the U.S." Only the final test equipment is the subject of this protest.

According to the concerned import specialist, the merchandise assembled consists of printed circuit boards (Pcb). The subject testing equipment reads the Pcb to determine if all of the components are functioning. According to the import specialist, the completed assemblies which do not pass the testing are returned to the assembly line for further processing. According to the import specialist this occurs frequently.

The imported assembled merchandise was appraised on the basis of computed value, and the cost of the testing equipment was included in the computed value of the merchandise as an assist.

It is the protestant's position that the testing equipment is not used in the production of the imported merchandise and therefore the cost of the equipment should not be included in the computed value of the imported merchandise as an assist.

ISSUE:

Whether the testing equipment constitutes an assist.

LAW AND ANALYSIS:

The term "assist" is defined in ?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)) as:

[A]ny 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.

In order to determine whether the testing equipment is an assist, we must find that the equipment is "used in the production of the imported merchandise." In C.S.D. 89-127 Customs held that test equipment provided by the U.S. importer, free of charge, to the foreign manufacturer and used for testing the integrity of finished instruments before such instruments were shipped to the U.S., did not constitute an assist within the meaning of TAA ?402(h)(1)(A). In C.S.D. 89-127 the testing equipment was used on the finished instruments and was not used in the production of the merchandise within the meaning of TAA

In Headquarters Ruling Letter (HRL) 544508 dated June 19, 1990, which was a reconsideration of C.S.D. 89-127, Customs held that testing equipment provided free of charge to the foreign manufacturer by the U.S. importer may constitute an assist within the meaning of TAA ?402(h)(1)(A) if it can be shown that the equipment was used for testing performed during the production process and that such testing, due to the nature of the finished product, was essential to production of the product. The facts in HRL 544508 concerned testing of the individual components to be assembled, prior to production, and testing throughout the assembly and manufacturing process. No product was sold or shipped without thorough testing. The testing equipment was found to be an assist within the meaning of TAA

In this case, the final testing equipment is used for testing the assembled products. Although the testing is performed on fully assembled products, the nature of the products requires such testing, as the integrity of the Pcb cannot otherwise be determined. The fact that the Pcb's frequently do not pass testing and are returned to the assembly line for further processing is evidence that production of merchandise is not complete until the Pcb's are determined to be functioning. As a result, we find that the testing equipment is used during the production process and is essential to the "production of the imported merchandise."

It is our opinion that the language "similar items used in the production of the imported merchandise," as that language is used in category (ii) of the assist provision, was intended to include as assists equipment that, like tools, dies and molds, directly contributes to the final product. Therefore, the testing equipment is an assist within the meaning of TAA included in the computed value of the imported merchandise.

Our determination is consistent with the prior decisions of the Customs Service. Therefore, the provisions of the Customs Modernization Act which amended 19 U.S.C. ?1625 are not applicable.

HOLDING:

The testing equipment is an assist within the meaning of TAA in the computed value of the imported merchandise as an assist.

Accordingly, you are directed to deny this petition. In accordance with Section 3A(11)(b) of Customs Directive 099 3550- 065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

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