HQ 545462 - Application for Further Review of Protest No. 3801-93-102724; Dutiability of Design Costs - United States International Trade Commision Rulings

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HQ 545462

August 9, 1994

VAL CO:R:C:V 545462 LPF

CATEGORY: VALUATION

District Director
U.S. Customs Service
477 Michigan Avenue - Room 200
Detroit, MI 48226

RE: Application for Further Review of Protest No. 3801-93-102724; Dutiability of Design Costs

Dear Sir:

This is a decision on an application for further review of a protest filed July 21, 1993, against your decision concerning the appraisement of hemming dies. The entries were liquidated on April 23, 1993 and April 30, 1993. We regret the delay in responding.

FACTS:

On January 8, 12, and 18, 1993, Tesco Engineering, Inc. ("Tesco"), a U.S. corporation, imported hemming dies at Detroit, MI. Tesco is 70 percent owned by Hirotec Corporation Japan ("Hirotec"), a seller/manufacturer, 20 percent owned by Itochu Corporation ("Itochu"), a Japanese trading agent, and 5 percent owned by Itochu International, Inc. Tesco was established for the purpose of developing and marketing industrial tooling and assembly equipment in the U.S.

The submitted documents include a purchase order, dated August 14, 1992, from Chrysler Corporation of Detroit to Tesco/Hirotec of Detroit for the latter to design, build, and tryout six hydraulic press hemming systems for front and rear doors, a deck lid, and a hood, in accordance with specifications. A purchase order, dated November 23, 1992, from Tesco to Itochu for numerous hemming dies also is provided in the file.

It is our understanding from the information provided, confirmed through a discussion with the concerned import specialist at Detroit, that Tesco carried out the design and build work for the hemming presses through their own in-house capabilities, but out-sourced the hemming dies because they lack the in-house capabilities to design and build such dies. Hence, Tesco placed an order with Itochu to supply the hemming dies, actually designed and built by Hirotec.

Apparently, the designs for the hemming dies are created and produced by Hirtoec. There is no indication that Tesco supplies the designs, in any manner, to Itochu or Hirotec. Instead, it appears that through Itochu, Tesco orders the hemming dies designed and built by Hirotec. Further, the facts as presented provide no indication that the buyer made any additional payment to the seller concerning the design of the hemming dies.

Upon reviewing the Chrysler-Tesco/Hirotec and Tesco-Itochu purchase orders, your office decided that the design cost of the dies had not been added to the transaction value of the merchandise. Because your office believes the design costs are dutiable as assists, you appraised the merchandise by adding the design costs to the price paid by Tesco.

Conversely, Tesco submits that all costs, including the design costs, were included in the invoice price of each consumption entry. The file includes a letter dated July 20, 1993, in this regard. Accordingly, the protestant claims that the appraised value should be the price paid by Tesco to Itochu, without any additions.

ISSUE:

Whether the costs for designing the hemming dies are considered assists to be added to the price actually paid or payable for the imported merchandise when no design work is provided by the buyer.

LAW AND ANALYSIS:

Although it appears that Tesco and Itochu are related parties pursuant to section 402(g) of the TAA, because that particular issue currently is not before us, this decision will not address the acceptability of the related party pricing. Nonetheless, the preferred method of appraisement is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a. Section 402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus enumerated statutory additions, including the value, apportioned as appropriate, of any assist. 19 U.S.C. 1401a(b)(1).

The "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as the "total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise...) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller."

With regard to the design costs, your office contends that the costs incurred for designing the hemming dies constitute assists necessary to produce the imported merchandise. We note that section 402(h)(1)(A) of the TAA provides, in pertinent part, as follows:

The term 'assist' means 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: . . .

(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.

We reiterate that, in this case, the designs for the hemming dies are created and produced by Hirotec, the seller/ manufacturer, and there is no indication that Tesco supplies the designs, in any manner, to Itochu or Hirotec. Because the facts indicate that the designs are not supplied (directly or indirectly) by Tesco, the buyer of the imported merchandise, they cannot constitute assists. Furthermore, because there is no indication that the buyer made any additional payment to the seller concerning the design of the hemming dies, the price actually paid or payable appears to embody the total payment by Tesco to Itochu for the imported merchandise.

HOLDING:

Based on the facts provided, you are directed to grant this protest. No assist appears to have been provided by the buyer of the imported merchandise. Additionally, the price actually paid or payable appears to embody the total payment by Tesco to Itochu for the imported merchandise. A copy of this decision with the Form 19 should be sent to the protestant.

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 to the
public via the Diskette Subscription Service, Lexis, the Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director

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