HQ 545577 - Internal Advice 96/93; Computed Value; General Expenses and Profit. - United States International Trade Commision Rulings

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HQ 545577

January 4, 1995

VAL CO:R:C:V 545577 er

CATEGORY: VALUATION

District Director
Laredo, Texas

RE: Internal Advice 96/93; Computed Value; General Expenses and Profit.

Dear Madam:

This is in response to your memorandum dated November 16, 1993, forwarded to this office from the NIS Division on March 1, 1994, concerning a request for internal advice submitted by counsel on behalf of xx regarding certain merchandise imported from Mexico which is appraised under computed value. We regret the delay in responding.

FACTS:
xx is a domestic manufacturer and importer of footwear that is sourced from various foreign assembly operations. The issue in this request pertains to certain footwear imported by [the importer] from related assembly operations in xx, Mexico ("Mexican Facilities"). [The importer] supplies U.S. origin fabricated components to the Mexican Facilities for use in the assembly and return of completed footwear. The imported footwear is appraised under computed value.

In reviewing the documents submitted, we are unable to determine why transaction value does not apply. If transaction value is found, the merchandise must be appraised on that basis and in accordance with section 152.103(a)(3), Customs Regulations (19 CFR 152.103(a)(3)), regarding assembled merchandise.

In the process of preparing the cost submission covering the time period June 29, 1992 through December 19, 1992, [the importer] reviewed all expenses incurred by it in connection with the Mexican Facilities. With counsel's advice, [the importer] determined that certain expenses previously declared to constitute assists did not in fact constitute assists, and notified Customs to this effect.

In response your office determined that these expenses, while not constituting assists, should have been included in the computed value of the merchandise as part of the amount for profit and general expenses. The expenses in dispute include the following:

(1) Outside rental contracts for equipment which is used in the Mexican Facilities for purposes other than manufacturing (e.g., Pitney Bowes mailing equipment).

(2) Furniture and fixtures of the type found in offices, lunchrooms, etc.

(3) Depreciation on automobiles and trucks located at, or otherwise travelling to and from, the Mexican Facilities.

(4) Amortization of leasehold improvements (e.g., ducts, compressors, etc., for air conditioning equipment).

(5) General insurance expenditures benefitting the U.S. company.

(6) Repair expenses paid in connection with the renovation of the facility itself (not directly related to the production area).

(7) Janitorial supplies purchased in the United States for use in the Mexican Facilities.

(8) Medical supplies purchased in the United States for use in the Mexican Facilities.

(9) U.S.-incurred telephone charges associated with communications to the Mexican Facilities.

(10) Postage and overnight delivery expenses.

(11) Office supplies purchased in the United States for use in the Mexican Facilities.

(12) Outside rental expenses for computer equipment.

(13) Administrative support expenses for the Mexican Facilities.

(14) AT&T data communications line.

ISSUE:

Where the producer's amount for general expenses and profit is recorded on the producer's books in a manner consistent with GAAP, is there authority to add to that figure certain amounts recorded on the importer's books for purposes of determining the computed value of imported merchandise?

LAW AND ANALYSIS:

Section 402(e) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 ("TAA"; 19 U.S.C. 1401a) provides that computed value consists of the sum of:

(A) the cost or value of the materials and the fabrication and other processing of any kind employed in the production of the imported merchandise;

(B) an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by the producers in the country of exportation for export to the United States;

(C) any assist, if its value is not included under subparagraph (A) or (B); and

(D) the packing costs.

The Statement of Administrative Action ("SAA") and the TAA state that the amount for profit and general expenses shall be derived from the commercial accounts of the producer, provided that the accounts conform to the generally accepted accounting principles applied in the country of production and the amount is consistent with the profits and general expenses usually reflected in sales of merchandise of the same class or kind. There is no authority to include in computed value an amount for profit and general expenses that is derived from a source other than the producer, unless the producer's amount is inconsistent. In that situation, the TAA and the SAA instruct us to include in the computed value of the merchandise an amount based on the usual profit and general expenses of producers of same class or kind
merchandise made in the country of exportation for export to the United States.

It should be noted that the amount for general expenses and profit is considered as a whole. Section 152.106(c), Customs Regulations (19 CFR 152.106(c)) provides as follows:

Profit and general expenses. The amount for profit and general expenses will be taken as a whole. If the producer's profit figure is low and general expenses high, those figures taken together nevertheless may be consistent with those usually reflected in sales of merchandise of the same class or kind.

Interpretative note 2 to the regulations states:

If the producer's own figures for profit and general expenses are not consistent with those usually reflected in sales of merchandise of the same class or kind as the merchandise being valued which are made in the country of exportation for export to the United States, the amount for profit and general expenses will be based upon reliable and quantifiable information other than that supplied by or on behalf of the producer of the merchandise.

Accordingly, regardless of what type of general expenses the producer has, they need to be viewed with the profit as a whole, in order to determine whether they are inconsistent with those usually reflected in sales of merchandise of the same class or kind.

In the instant case, however, you state that [the importer’s] Mexican Facilities are the sole producers of footwear of this class or kind and that, therefore, there is no basis of comparison by which to verify whether the general expenses and profit recorded on the Mexican Facilities' books are usual. Nonetheless, you believe that the expenses listed above, and recorded on the importer's books, are properly included in the computed value of the merchandise for the reason that the expenses contributed (directly or indirectly) to the production of the imported products.

Assuming arguendo that [the importer's] Mexican Facilities are the sole producer of footwear of this class or kind, and assuming that their amount for profit and general expenses is recorded in a manner consistent with the generally accepted accounting principles in Mexico, there is no authority to include in the computed value the amount reflected on the importer's accounts for general expenses and profit. See, HRL 545045 (February 1, 1994) and TAA 44 (HRL 542658 dated January 12, 1982 and supplement HRL 542873 dated July 20, 1982).

HOLDING:

Where the producer's amount for general expenses and profit is recorded on the producer's books in a manner consistent with GAAP, there is no authority to add to that figure certain amounts recorded on the importer's books. Accordingly, the amount for general expenses and profit recorded on the importer's books is not included in the computed value of the imported merchandise.

Sincerely,

John Durant, Director
Commercial Rulings Division

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