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HQ 545224




September 19, 1994

VAL CO:R:C:V 545224 CRS

CATEGORY: VALUATION

District Director
U.S. Customs Service
P.O. Box 9516
El Paso, TX 79985

RE: Internal Advice 86/92; U.S. origin packing; appraised value; dutiable value; C.S.D. 89-26; HRL 544294; HRL 544667

Dear Sir:

This is in reply to your memorandum to the Director, Customs Information Exchange, dated November 25, 1992, under cover of which you forwarded internal advice request 86/92, submitted by Rudolph Miles & Sons on behalf of L.M. Becker & Co. A submission was also made by the concerned National Import Specialist in a memorandum dated February 1, 1993. We regret the delay in responding.

FACTS:

L.M. Becker (the "importer") imports small toys, imitation jewelry and other items (the "toys") from Hong Kong, Taiwan and China. The toys are duty-paid at the U.S. port of importation and then consigned to unrelated contractors in Mexico. There the toys are placed one each in small, plastic, oval- or elliptically-shaped containers of U.S. origin, which the buyer also consigns to the Mexican contractors. The containers are designed to be sold with their contents through vending machines. The containers and their contents are re-imported into the U.S. through the port of El Paso.

The importer contends that the appraised value of the imported merchandise (the toys and containers) should not include the value of the U.S. origin packing, i.e., the egg-shaped, plastic containers. In support of this contention the importer cites Headquarters Ruling Letter (HRL) 731806 of November 18, 1988 (also published as C.S.D. 89-26), which held that U.S. packaging materials are eligible for duty-free treatment under subheading 9801.00.10, Harmonized Tariff Schedule of the United States Annotated (HTSUSA), so long as they satisfy the criteria for classification in that subheading. The importer also cites HRL 544294 dated July 7, 1989, and HRL 544723 dated October 23, 1991, in support of its position.

In your memorandum of November 25th you state that the imported merchandise should be appraised as a unit, with the appraised value subsequently adjusted in respect of the value of the U.S. containers in order to arrive at the dutiable value of the merchandise. This position is also advocated by the National Import Specialist in her memorandum of February 1st. The eligibility of the imported merchandise for the reduction in duty provided for in subheading 9902.71.13, HTSUSA, depends on whether the U.S. packing containers are included in the appraised value of the imported merchandise.

ISSUES:

The issues presented are: (1) whether the value of U.S. packing is included in the appraised value of the imported toys; and (2) whether the term "value" as used in subheading 9902.71.13, HTSUSA, refers to appraised value or dutiable value.

LAW AND ANALYSIS:

Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. ? 1401a; TAA). The preferred method of appraisement is transaction value, defined as "the price actually paid or payable for the [imported] merchandise when sold for exportation to the United States," plus certain enumerated additions, including the packing costs incurred by the buyer with respect to the imported merchandise. 19 U.S.C. ?

Assuming transaction value is the appropriate basis of appraisement, packing costs constitute an addition to the price actually paid or payable. 19 U.S.C. ? 1401a(b)(1)(A). In this regard, section 402(h) of the TAA provides:

(3) The term "packing costs" means the cost of all containers and coverings of whatever nature and of packing, whether for labor or materials, used in placing merchandise in condition, packed ready for shipment to the United States.

19 U.S.C. ? 1401a(h)(3). Retail packing is included in the statutory definition of packing costs and must be added to the price actually paid or payable. HRL 544230 dated December 22, 1988.

In support of its position the importer cites HRL 544294 dated July 7, 1989, which held that if packaging material of U.S. origin is classifiable in subheading 9801.00.10, HTSUSA, there is no legal authority to treat the packaging as part of the appraised value of the imported merchandise, and that items separately classified must be separately appraised.

This position was affirmed in HRL 544667 dated July 30, 1991. There we stated in pertinent part:

With regard to determining appraised value, the principle that imported merchandise be appraised in accordance with its classification applies. Thus, where American packaging is classified under subheading 9801.00.10, HTSUSA, and the merchandise packed in the American packaging is classified in a subheading within the nomenclature between Chapters 1 and 97, no authority exists to combine the respective appraised values. Because the packaging and merchandise are treated as separately classifiable entities, their appraised values are separate....

However, this is not the case with regard to the merchandise that is the subject of the instant internal advice request. The National Import Specialist states in her memorandum that the imported articles and their plastic containers are classifiable in the appropriate headings for toys, jewelry, etc., under General Rule of Interpretation 1. Thus in this instance, the U.S. origin packing, i.e., the plastic containers, and the imported merchandise are not separately classifiable.

Instead, the U.S. origin containers are classifiable with the toys. The containers are used in placing the imported toys "in condition, packed ready for shipment to the United States." 19 U.S.C. ?1401a(h)(3). Accordingly, the cost of the containers is an addition to the price actually paid or payable in accordance with section 402(b)(1)(A) of the TAA. 19 U.S.C. ? 1401a(b)(1)(A).

The importer contends that term "value" as used in subheading 9902.71.13, HTSUSA, refers to the dutiable value rather than appraised value of imported merchandise. Section 500 of the Tariff Act of 1930, as amended (19 U.S.C. ? 1500), is the general authority for Customs to appraise imported merchandise. It provides that Customs shall appraise merchandise by ascertaining its value under section 402 of the TAA. In addition, section 503 of the Tariff Act of 1930, as amended, provides:

Except as [otherwise] provided...the basis for the assessment of duties on imported merchandise subject to ad valorem rates of duty or rates based upon or regulated in any manner by the value of the merchandise, shall be the appraised value determined upon liquidation, in accordance with section 1500 of this title....

19 U.S.C. ? 1503. Thus to restate, where a rate of duty is regulated by the value of imported merchandise, the term "value" refers to the appraised value of the merchandise determined in accordance with section 402 of the TAA. Accordingly, the term "value" in subheading 9902.71.13, HTSUSA, refers to the appraised value of the imported merchandise. See also C.S.D. 81-36; HRL 543319 dated January 17, 1985. Finally, we have not addressed the question of the proper dutiable value of the imported merchandise since this issue was not raised by the internal advice request.

HOLDING:

The value of the U.S. origin containers classified in subheading 9801.00.10, HTSUSA, is part of the appraised value of imported merchandise. The term "value" in subheading 9902.71.13, HTSUSA, refers to appraised value of imported merchandise.

This decision should be mailed by your office to the internal advice requester no later than sixty days from the date of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel vis the Customs Rulings Module in ACS, and to the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director

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