HQ 546479 - Dutiability of charges paid for Vacuum Packing imported garments paid to a party other than the seller - United States International Trade Commision Rulings

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HQ 546479

October 29, 1996

RR:IT:VA 546479 RSD

CATEGORY: VALUATION

Mr. Frank X. Kelly
Vice President, Customs and International Trade Liz Claiborne, Inc.
1 Claiborne Avenue
North Bergen, New Jersey 07047

RE: Dutiability of charges paid for Vacuum Packing imported garments paid to a party other than the seller

Dear Mr. Kelly:

This is in response to your letter dated August 16, 1996, requesting a prospective ruling regarding the dutiability of charges that your company, Liz Claiborne, Inc., is considering paying for vacuum packing imported garments. In your letter you explain that Liz Claiborne, Inc. has not yet begun using the overseas vacuum packer's services.

FACTS:

Liz Claiborne, Inc. is an importer of garments. It is contemplating using the services of a foreign "Vac Pak facility" to perform vacuum packing operations for garments purchased from an unrelated vendor. It is our understanding that the "vac pak facility" will not be related to the seller of the imported garments. You have indicated in a telephone conversation, with a member of our staff, that the vacuum packing of the garments abroad will eliminate the need for services that are currently being performed in the United States to get the merchandise ready for retail sale, such as pressing. It is intended that vacuum packing garments abroad will save Liz Claiborne money.

You state that all merchandise is to be collected on hangers. The merchandise can be hung on mobile rails for loading into the collection vehicle or hung on hanging garment equipment fixed in the collection vehicle. The collection vehicle can be either an ocean container or a truck.

If the merchandise has been collected by truck and drayed to the vac pak terminal, then the products must be unloaded at the terminal and loaded into an ocean container which is permanently placed at the vac pak company's facility. The garments can be loaded into this
container either on mobile rails or hung on hanging garment equipment installed in the container. This container is then opened and the merchandise removed into the vac pak terminal garment handling and processing area and progressed through the vacuum packing procedures described below.

If the merchandise has been collected in an ocean container, then this container is sealed and drayed into the vac pak terminal. This container is then opened at the vac pak company's terminal garment handling facility and processing area and progressed through the vacuum packing procedures. (You point out that when an ocean container is used to collect the merchandise, it is not necessary to perform the same operation as when the merchandise is collected by truck.)

You describe the vacuum packing operations as follows:

. Garments are made ready for a preconditioning process by raising the poly bag up to the hanger.

. Garments are hung in a chamber that extracts the moisture from them and the poly bags are lowered to their original position.

. Garments are then inserted in a special multi-layer poly bags. Excess air is extracted and the bag is sealed. The garments are totally isolated from the humid atmosphere.

. The vac pak bags are then packed in cartons or on a wooden pallet without cartons and placed in the vessel container.

. Upon receipt in the U.S. the bags are opened and the garments are removed and hung on trolleys for distribution.

ISSUE:

Whether the vacuum packing charges paid to a party other than the seller are to be added to the "price actually paid or payable" for the imported merchandise as packing costs?

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 (the TAA; 19 U.S.C. 1401a). The preferred method 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 certain additions, including the packing costs. 19 U.S.C. 1401a(b)(1). The term price actually paid or payable is defined

...the total payment (whether direct or indirect...) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

The charges paid for the vacuum packing services described above are not part of the price actually paid or payable because they are not paid to or for the benefit of the seller of the imported merchandise. Accordingly, we must determine whether they would be an addition to price actually paid or payable as packing costs.

The term packing costs is defined in TAA 402(h)(3) as 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.

In Headquarters Ruling Letter (HRL) 542834 dated July 30, 1982 (TAA No. 49), we noted that the phrase "packed ready for shipment to the United States" was analogous to the merchandise being "in seaworthy condition." Therefore, in that case services performed which were incident to placing the merchandise packed ready for shipment to the United States were held to be dutiable as "packing costs." The costs incurred subsequent to the merchandise attaining that status were held to be not dutiable.

In HRL 542897, dated August 16, 1982, Customs ruled that where merchandise was packed in ocean containers, on hangers, on racks, in condition ready for shipment to the United States, charges for a vacuum packaging process performed subsequently would not be part of transaction value, provided the costs of packing the merchandise for shipment to the United States and costs for the vacuum packaging were noted separately and distinguished on the invoice submitted to Customs at the time of entry. See also HRL 542957 dated November 26, 1982.

In HRL 543026 dated March 17, 1983, the manufacturer placed the finished garments on hanging racks in an ocean-going container and sealed it. The containerized merchandise was drayed to the vacuum packer's facility where it was subjected to a vacuum packing process which reduced the size of the garments. The vacuum-packed garments were then placed in cardboard boxes and drayed to a freight consolidator for subsequent shipment to the United States. We ruled that under the circumstances described, the vacuum packing would not be part of the value because it takes place after the merchandise has been placed in condition, packed ready for shipment to the United States.

Based on your description, we will assume that the vacuum charges will be performed after the merchandise has been packed in a manner which would meet industry standards for international transportation of the merchandise in question. The merchandise would be hung on racks, put in poly bags, and placed in a container before the vacuum packing services are performed. In accordance with our previous rulings regarding vacuum packing, cited above, we conclude that such costs would not be part of transaction value since the imported garments are in a seaworthy condition for shipment to the United States prior to vacuum packing.

HOLDING:

In view of the foregoing, it is our conclusion that the charges that the importer incurs to a party unrelated to the seller for vacuum packing the imported garments would not be packing costs within the meaning of section 402(h)(3) of the TAA and would not be part of the transaction value of the imported merchandise.

Sincerely,

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