HQ 546102 - Request for a ruling concerning whether grinding machines provided free of charge are assists; §402(h)(1)(A) of the TAA; HRLs 542122; 542302; 542762; 542139 and 544323; Texas Apparel Co - United States International Trade Commision Rulings

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HQ 546102

December 22, 1995

RR:IT:VA 546102 KCC

CATEGORY: VALUATION

Ms. Bernice Conduit
THC Systems, Inc.
395 North Service Road
Melville, New York 11747-9037

RE: Request for a ruling concerning whether grinding machines provided free of charge are assists; §402(h)(1)(A) of the TAA; HRLs 542122; 542302; 542762; 542139 and 544323; Texas Apparel Co

Dear Ms. Conduit:

This is in reply to your letter dated August 14, 1995, requesting a ruling on whether grinding machines provided free of charge to the foreign manufacturer will be considered assists within the meaning of §402(h)(1)(A) of the TAA.

FACTS:

You recently shipped free of charge two new grinding machines to Chinese manufacturers, who produce your porcelain, stoneware and chinaware products. You state that the grinding machines are used solely for the purpose of testing the quality of your products. In a telephone conversation with a member of my staff on December 20, 1995, you stated that your products may not be even, i.e., they will not lay flat on a surface, after the manufacturing operations. If a product does not meet this specifications, the foot of product, i.e., plate, is ground by the grinding machine. Therefore, the grinding machines bring your products up to the manufacturing specifications.

You contend that the grinding machines are not assists because they do not consist of tools, dies, molds or similar items used in the production of the imported merchandise, do not consist of materials, components, parts, or similar items incorporated in the imported merchandise, and the cost of the machines is not added or deducted to the price of the imported machines. In a facsimile dated August 22, 1995, you provided this office with component and cost breakdowns for the grinding machines.

ISSUE:

Whether the grinding machines constitute an assist as defined in §402(h)(1)(A) of TAA.

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), codified at 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.

It is our position 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, covers equipment that, like tools, dies and molds, directly contributes to the final product.

In Headquarters Ruling Letter (HRL) 542122, dated September 4, 1980 (TAA #4), Customs held that general purpose equipment, such as sewing machines, ovens, drill presses, etc., which was actually used in the production of the merchandise was an assist under §402(h)(1)(A)(ii) of the TAA. In HRL 542302, dated February 27, 1981 (TAA #18), Customs contrasted this equipment with general purpose equipment such as emergency power generators, telephone switching equipment, and air conditioning equipment, which was not used in the actual production of the imported merchandise and was, therefore, not considered to be an assist within the meaning of §402(h)(1)(A)(ii) of the TAA. In HQ 542762, dated January 14, 1983, Customs noted that the distinction is often based on whether or not the equipment "works a change" on the merchandise during production.

In HRL 542139, dated October 15, 1980 (TAA #9), Customs stated that general purpose equipment is treated as an assist. §402(h)(1)(A)(ii) of the TAA specifically addresses "tools...and similar items used in the production of the merchandise." In Texas Apparel Co., v. United States, 12 CIT 1002, 698 F. Supp. 932 (1988), aff'd, 883 F.2d 66 (1989), the court affirmed Customs' position that even general purpose equipment may be considered assists under §402(h)(1)(A)(ii) of the TAA, if such equipment is used directly in the production of the imported merchandise. Customs, in determining the appraised value on the basis of computed value, had included an addition for the cost of sewing machines as an assist. The plaintiff had claimed that the inclusion of the cost of the sewing machines was an error because the machines were not "tools dies, molds, and similar items used in the production of the imported merchandise" as provided for in the statute. The court found that including the value of the sewing machine, which was essential to the fabrication of the apparel, fairly and accurately reflected the cost of producing the imported merchandise."

In applying the court's decision to this case, we have concluded that the grinding machines provided by your company are used in the production of the imported merchandise. The grinding machines grind the foot of your products, bringing them up to the proper specification, so that they will lay flat on a surface and can be used by the consumer. Therefore, we find that the grinding machines are used during the production process and are essential to the "production of the imported merchandise." The grinding machines are assists within the meaning of §402(h)(1)(A)(ii) of the TAA and the cost of the grinding machines are included in the transaction value or the computed value, as the case may be, of the imported merchandise.

We note that pursuant to §152.103(d), Customs Regulations (19 CFR 152.103(d)), the port director shall determine the value of the assist and apportion that value to the price of the imported merchandise. §152.103(d)(2) states that the value of an assist acquired from an unrelated party within the meaning of §402(h)(1)(A)(ii) of the TAA is the cost of its acquisition. Customs has determined the cost of its acquisition is its purchase price plus actual transportation costs. See, HRL 544323 dated March 8, 1990. Additionally, the value of the assists may be apportioned to the imported merchandise pursuant to §152.103(e)(1), Customs Regulations (19 CFR §152.103(e)(1)), which provides that:

The apportionment of the value of assists to imported merchandise will be made in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles. The method of apportionment actually accepted by Customs will depend upon the documentation submitted by the importer. If the entire anticipated production using the assist is for exportation to the United States, the total value may be apportioned over (i) the first shipment, if the importer wishes to pay duty on the entire value at once, (ii) the number of units produced up to the time of the first shipment, or (iii) the entire anticipated production. In addition to these three methods, the importer may request some other method of apportionment in accordance with generally accepted accounting principles. If the anticipated production is only partially for exportation to the United States, or if the assist is used in several countries, the method of apportionment will depend upon the documentation submitted by the importer.

HOLDING:

The grinding machines are assists within the meaning of §402(h)(1)(A) of the TAA and the cost of the grinding machines is included in the transaction value or the computed value, as the case may be, of the imported merchandise.

Sincerely,

Acting Director
International Trade Compliance Division

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