HQ 545336 - Internal advice; industrial pumps; mold patterns; assists; tools, dies and molds; engineering and design work; TAA No. 54 - United States International Trade Commision Rulings

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HQ 545336

November 23, 1994

VAL CO:R:C:V 545336 CRS

CATEGORY: VALUATION

Regional Director
Regulatory Audit Division
U.S. Customs Service
One World Trade Center
Room 547
Los Angeles, CA 90831

RE: Internal advice; industrial pumps; mold patterns; assists; tools, dies and molds; engineering and design work; TAA No. 54

Dear Sir:

This is in reply to an internal advice request, dated May 28, 1993, submitted by the Manager, Regulatory Audit Division, Branch VI, concerning the dutiability of certain mold patterns supplied by Sulzer Bingham Pumps Inc. ("Sulzer") to foreign manufacturers for use in the manufacture of imported merchandise. A submission was made by Sulzer's counsel, Glad & Ferguson, in a letter dated November 18, 1993. Additional submissions were made in letters dated May 25, 1994, August 22, 1994, and September 9, 1994. Joint responses to points raised in counsel's letters were submitted by the concerned auditor and import specialist in Portland, under cover of memorandums dated June 21, 1994, July 11, 1994, and October 12, 1994.

FACTS:

Sulzer is a manufacturer of industrial pumps, including pumps for the power generation, hydrocarbon, pulp and paper, and wastewater industries. The company also imports pumps and pump components from related and unrelated manufacturers. Sulzer was recently the subject of an audit by the Portland office of the Pacific Region Regulatory Audit Division. A copy of the audit report was submitted under cover of a CF 387 dated November 9, 1993.

In addition to manufacturing pumps, Sulzer manufactures wood and fiberglass pump mold patterns, ("mold patterns"), which it supplies free of charge to foreign and domestic foundries. The foundries use the master molds to make wax "investment casting molds" ("casting molds"). Once a casting mold is made, a ceramic or refractory slurry is poured over it and allowed to solidify into a shell. When the slurry has hardened, the wax casting mold is melted out of the shell and molten metal poured in. After the metal has cooled and solidified, the ceramic shell is broken off leaving in its place a metal casting. Thus both the shell and casting mold are destroyed in the process of making a finished casting. The master molds are used throughout the production process. Thus each time a casting is made, the mold patterns are used and the above process is repeated.

Once supplied by Sulzer the mold patterns are generally retained by the foundry. However, they are returned in the event that the business relationship with a foundry for the production of a particular type of casting is terminated. Any returns are stored by Sulzer until a need arises for a particular type of mold pattern. Counsel likens the mold patterns to templates and therefore contends that, apart from those manufactured in Korea, the mold patterns are not similar to tools, dies or molds.

The mold patterns vary in size, cost and age but generally have a useful life of sixty years. The historical cost dollar values of the individual patterns varies considerably, and their ages range from between one and sixty years. All the mold patterns are owned by Sulzer and all were manufactured in the U.S. except for sixty-four which were made in the Republic of Korea during the period 1987-1991.

Since 1978, Sulzer has treated the mold patterns as assists and declared their value to Customs. Nevertheless, counsel for Sulzer questions the designation of the mold patterns as assists and contends instead that they represent non-dutiable U.S. design work. In contrast, you maintain that the patterns are in fact assists. In addition, the audit report questions the method Sulzer has been using to apportion the value of the mold patterns. Assuming that it is determined that the mold patterns are assists, however, counsel has suggested an alternative method of apportionment. Since the production of mold patterns can be expressed as a percentage of the unit life of the patterns, counsel requests that Sulzer be permitted: (1) to apportion the value of existing patterns against their remaining mold production life; and (2) to apportion the value of future mold patterns against the total value of castings scheduled for production in any future assist valuation. A formula for this method of apportionment is set out on page 11 of counsel's letter of November 18, 1993.

ISSUES:

The issues presented are: whether mold patterns supplied by Sulzer to the foreign manufacturers of castings constitute assists such that the value of the patterns forms an addition to the price actually paid or payable for the imported merchandise; and if so, whether the method used to apportion the value of the assists is correct.

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 (TAA; 19 U.S.C. ? 1401a). The preferred basis of appraisement under the TAA is transaction value, defined as the "price actually paid or payable for the merchandise when sold for exportation to the United States," plus five statutorily enumerated additions including the value, apportioned as appropriate, of any assist. 19 U.S.C. ? 1401a(b)(1).

The term "assist" is defined by section 402(h)(1)(A) of the TAA as that which is supplied by the buyer of imported merchandise, directly or indirectly, and free of charge or at a reduced cost, for use in connection with the production, or the sale for export to the United States, of the imported merchandise. The term "assists" includes, inter alia:

(ii) Tools, dies, molds and similar items used 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.

19 U.S.C. ? 1401a(h)(1)(A).

The distinction between tools, dies and molds on the one hand, and development and design work on the other, has been the subject of a number of rulings issued by this office. In particular, counsel cites Headquarters Ruling Letter (HRL) 542936 dated November 12, 1982 (TAA No. 54), in which a metal disc furnished without charge to the foreign manufacturer of the imported phonograph records was found not to be an assist. The metal disc, or "mother," was used to make a "stamper," which was used to produce the phonograph records. Since the "mother" did not give final shape and form to the imported merchandise, but was used to produce a mold, it was determined to be distinguishable from a mold or die and found instead to be analogous to development work.

In contrast, in HRL 542355 dated April 3, 1981 (TAA No. 21), a metal stamper used to make phonograph records was held to be an assist since it was used in the production of the imported merchandise. In HRL 544147 dated July 5, 1988, a photomask provided free of charge to a foreign manufacturer and used to transfer integrated circuitry patterns onto silicon wafers was found to be a similar to tools, dies and molds. The photomask did not come into contact with the silicon wafers; instead the image of the photomask was transferred to the imported silicon wafers by projection. Nevertheless, the photomask was deemed to confer final shape and form to the finished merchandise and therefore constitute an assist.

The mold patterns supplied by Sulzer to the manufacturers of imported castings are used to make wax castings. The wax castings are then used to make ceramic shells which in turn are used to make the imported castings. Counsel argues that in this respect the patterns are similar to the "mother" mold of HRL 542936. However, the mother mold was used to produce a stamper. Once the stamper was produced, the role of the mother was ended. From that point onward in the manufacturing process, the stamper alone was used to produce the phonograph records which constituted the imported merchandise. In contrast, the Sulzer mold patterns are in constant use during the production of the imported merchandise. Indeed, they must be employed whenever a new casting is made since the wax casting molds and the ceramic shell are destroyed each time a new casting is made. Under the TAA, "tools, dies, molds, and similar items used in the production of the imported merchandise" are considered assists. We find that the patterns are in constant use during the production of the imported castings and are essential to their production. Accordingly, it is our position that the mold patterns constitute assists within the meaning of section 402(h)(1)(A)(ii) of the TAA.

In your memorandum of May 29, 1993, you raised an issue with respect to the value and apportionment of the patterns. Counsel's submissions have also addressed this issue. In regard to the former, the Customs Regulations provide that assists in the form of tools, dies, molds and similar items provided by the buyer are to be valued based on their cost of production, plus the cost of transporting assists to the place of production, as well as any costs of repair or modification. 19 C.F.R. ? 152.103(d)(2). In regard to the latter, the Customs Regulations provide that while the value of assists should be apportioned in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles, the actual method of apportionment accepted by Customs will depend on the documentation submitted by the importer. 19 C.F.R. ? 152.103(e). However, in your memorandum of October 12, 1994, you recommended that issues concerning the value and apportionment of the assists be discussed further at the local level. In accordance with your request, we have not addressed the valuation or apportionment of the patterns at this time.

HOLDING:

The mold patterns used in the production of the imported merchandise constitute assists under section 402(h)(1)(A) of the TAA.

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 via the Customs Rulings Module in ACS, and to the public via the Diskette Subscription Service, Freedom of Information Act and other public information channels.

Sincerely,

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