HQ 548375 - Price Actually Paid or Payable; Allocation; Reimbursement Payments Made by Purchaser to Foreign Vendor for Production Costs; Inclusion in Dutiable Value of First Entry. - United States International Trade Commision Rulings

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HQ 548375

October 30, 2003

VAL:RR:IT:VA 548375 jsj

CATEGORY: VALUATION

Mr. Kenneth G. Weigel
Ms. Carol A. Rafferty
Alston & Bird LLP
601 Pennsylvania Ave., N.W.
North Building, 10th Floor
Washington, D.C. 20004-2601

RE: Price Actually Paid or Payable; Allocation; Reimbursement Payments Made by Purchaser to Foreign Vendor for Production Costs; Inclusion in Dutiable Value of First Entry.

Dear Counsel:

The purpose of this correspondence is to respond to your request dated August 4, 2003. The correspondence in issue requested, on the behalf of ACCO Brands and Master Lock Company, business units of Fortune Brands (Fortune Brands Companies), a binding valuation ruling. The Customs transaction subject to this ruling concerns the allocation to the first entry of merchandise of reimbursement payments for material and production equipment made by the United States purchaser to the foreign seller.

The Fortune Brands Companies requested confidential treatment pursuant to 19 C.F. R. 177.2 (b)(7) for commercial and financial information denoted in brackets in its ruling request. Customs and Border Protection’s review of the ruling request did not reveal any bracketed information.

FACTS

The Fortune Brands Companies imports merchandise such as binders, computer accessories, desk accessories, furniture, locks and lock assemblies. The Fortune Brands Companies periodically imports merchandise for which the foreign vendors have been reimbursed by the importer for materials and/or production equipment procured by foreign vendors and used in the production of the imported merchandise.

The importer advises Customs and Border Protection (CBP) that the reimbursement payments made to the foreign vendors for materials and production equipment covers merchandise imported over numerous entries and over an extended period of time. Stated more succinctly, the materials and production equipment for which the reimbursement payments are made will be used to produce imported merchandise that will be imported in entries beyond the first entry.

The Fortune Brands Companies advise CBP with regards to the inclusion of the reimbursement payments in the dutiable value of the first entry:

There will be no reduction in duties paid to the United States as the result of the inclusion of the reimbursement payments in the dutiable value of the first entry; The classification of the imported merchandise is not dependent on its valuation and the classification will not change as the result of the inclusion of the reimbursement payments in the dutiable value of the first entry; Duty drawback will not be sought if the reimbursement payments are included in the dutiable value of the first entry; and Declaring the reimbursement payments in the dutiable value of the first entry is in accordance with Generally Accepted Accounting Principles.

Counsel for the importer advises CBP that the proposed transactions will involve both related and unrelated companies. The Fortune Brands Companies requests that this ruling be issued with the assumption that if the transaction involves related companies the relationship did not affect the price actually paid or payable.

ISSUE

May the Fortune Brands Companies, when importing merchandise appraised pursuant to the transaction value method of appraisement, allocate the dutiable value to the first entry, reimbursement payments made to the foreign vendors which payments are made for materials and production equipment used to produce the merchandise imported in the first entry, as well as in subsequent entries ?

LAW AND ANALYSIS

The federal agency responsible for interpreting and applying the United States Code and the regulations of the Bureau of Customs and Border Protection, as they relate to the final appraisement of merchandise, is Customs and Border Protection.

See 19 U.S.C. 1500 (West 1999) (providing that Customs and Border Protection is responsible for fixing the final appraisement, classification and amount of duty to be paid); See also Joint Explanatory Statement of the Committee of Conference, H.R. Conf. Rep. No. 100-576, at 549 (1988) reprinted in 1988 U.S. Code Cong. and Adm. News 1547, 1582 [hereinafter Joint Explanatory Statement]. Customs and Border Protection, in accordance with its legislative mandate, fixes the final appraisement of imported merchandise in accordance with Section 402 (b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979. See 19 U.S. C. 1401a (West 1999); See generally, What Every Member of The Trade Community Should Know About: Customs Value, an Informed Compliance Publication of Customs and Border Protection available on the World Wide Web site of Customs and Border Protection at www.cbp.gov.

The preferred method of appraisement is transaction value. The transaction value of imported merchandise is:
the price actually paid or payable for merchandise when sold for exportation to the United States, plus amounts equal to –

(A) the packing costs incurred by the buyer with respect to the imported merchandise; (B) any selling commissions incurred by the buyer with respect to the imported merchandise; the value, apportioned as appropriate, of any assist; any royalty or license fee related to the imported merchandise that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States; and (E) the proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller. 19 U.S.C. 1401a (b)(1).

The “price actually paid or payable,” as defined in the Trade Agreements Act, is:
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 from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. 19 U.S.C. 1401a (b)(4)(A).

We have found that based on the meaning of the term “price actually paid or payable” as found in Generra Sportswear Co. v. United States, 905 F. 2d 377 (Fed. Cir. 1990), there is a rebuttable presumption that all payments made by a buyer to a seller, or to a party related to a seller, are part of the price actually paid or payable. See, e.g., Headquarters Ruling Letter (HRL) 546771 (Mar. 27, 1998). The payments relevant to the transaction proposed by the Fortune Brands Companies are reimbursements made to foreign vendors for materials and production equipment procured by the vendors. The materials and equipment will be used in the manufacture of merchandise that the Fortune Brands Companies will import into the United States. Therefore, the payments are part of the price actually paid or payable.

The importer proposes to include in the dutiable value of the first entry of merchandise manufactured using the materials and equipment for which the Fortune Brands Companies will make reimbursement the total amount of the reimbursement to be paid to the foreign vendors. The inclusion of the total amount of the reimbursement in the dutiable value of the first entry will include amounts that do not specifically relate to the merchandise in the entry because the materials and/or production equipment will be used to manufacture merchandise that will be imported in subsequent entries. Counsel for the importer, referencing 19 C.F.R. 152.103 (e), the apportionment of assists, notes that this proposal would be acceptable if the matter involved an assist.

The Court of International Trade in Chrysler Corp. v. United States, 17 C.I.T. 1049 (Ct. Int’l Trade 1993) decided how to apportion payments made by a buyer to a seller for tooling expenses. The court initially noted that the payments were not assists because “the seller was not supplied with actual tooling” but, rather, was paid for the expense. Id at 1058. The court subsequently stated “that the fact that these costs do not qualify as statutory assists does not prevent some form of allocation.” Id. See HRL 545264 (Aug. 12, 1994) (citing the Chrysler decision).

Under the particular circumstances of Chrysler, the court found that for tooling expenses the costs should be apportioned over the value of the total number of items intended to be produced based on the intent of the parties and the evidence presented. Subsequent to Chrysler, Customs has found apportionment acceptable if it is reasonable and in accordance with Generally Accepted Accounting Principles. See HRL 546771 Id.

It is the conclusion of Customs and Border Protection that the Fortune Brands Companies may structure the arrangements with its foreign vendors so that the reimbursement payments that are properly part of the total payment of the price actually paid or payable for imported merchandise may be included in the dutiable value of the first entry. The proposed transaction is acceptable provided that it does not violate other provisions of the Customs laws, results in no revenue reduction to the United States, does not impact the classification of the merchandise and the importer does not seek drawback.

HOLDING

The Fortune Brands Companies, when importing merchandise appraised pursuant to the transaction value method of appraisement, may allocate the dutiable value to the first entry, reimbursement payments to be made to foreign vendors which payments will be made for materials and/or production equipment to be used to produce the merchandise imported in the first entry, as well as merchandise imported in subsequent entries.

This holding is predicated on the following conditions:

There will be no reduction in duties paid to the United States as the result of the inclusion of the reimbursement payments in the dutiable value of the first entry; The classification of the imported merchandise is not dependent on its valuation and the classification will not change as the result of the inclusion of the reimbursement payments in the dutiable value of the first entry; and (3) Duty drawback will not be sought if the reimbursement payments are included in the dutiable value of the first entry.

Customs and Border Protection additionally notes that this ruling was issued in accordance with the request of the Fortune Brands Companies that CBP assume that transactions between related parties did not affect the price actually paid or payable. Transactions between related Fortune Brands Companies in which the price actually paid or payable is impacted by the relationship would preclude reliance on this ruling letter.

The regulations of Customs and Border Protection, 19 C.F.R. 177.9 (b)(1), provides that:

Each ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service [Customs and Border Protection] field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.

If any of the facts are materially different or a condition has not been satisfied, the treatment specified in this ruling will not be applied to the actual transaction.

Sincerely,

Virginia L. Brown, Chief
Value Branch

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