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HQ 545789




April 19, 1995

VAL CO:R:C:V 545789 er
CATEGORY: VALUATION

District Director
Miami District

RE: IA 42/94; Internal Advice Concerning Dutiability of U.S. Handling and Documentation Charges on Southbound Freight Invoice; Assists; 9802.00.80.

Dear Madam:

This is in response to your memorandum dated June 27, 1994, forwarding the request for internal advice submitted by counsel on behalf of its client, Gator of Florida, Inc. ("Gator"). We regret the delay in responding.

FACTS:

Gator of Florida, Inc. ("Gator") imports women's cotton and man-made fiber slacks, shorts and shirts assembled overseas and entered under 9802.00.80 of the Harmonized Tariff Schedule of the United States ("HTSUS"). The cut components that are provided by Gator to the assembler are not purchased as such by Gator; rather, Gator purchases the fabric and then cuts the fabric into components at its own facility in the U.S.

On February 11, 1994, Customs issued Consumption Entry Audit Report No. 411-92-CEO-006. One of the audit objectives was to verify the accuracy and reliability of value information submitted to Customs supporting entries made by Gator between January 1, 1988 and December 21, 1992. As a result of this audit, Customs asserted that several adjustments should be made to the entered values used by Gator during the period under review. Specifically, the audit report concluded that all charges itemized on the southbound freight bill, which was issued in connection with the shipment of U.S. cut components to Gator's offshore assembly operation, form a part of the dutiable value of the assembled merchandise. A copy of the audit report was presented with your submission.

It is your position that U.S. handling and documentation charges are part of the costs of transporting the U.S. components/assists to the assembler's plant, and as such should form part of dutiable value of the assembled merchandise. In your opinion these charges are for "services incident to the international shipment of the merchandise". Moreover, you argue, these charges are not separable from the other costs incurred for transporting the components to the foreign port in that the freight company issues only one invoice for all the services rendered.

Counsel claims that the items identified as U.S. handling charges and documentation charges reflected on the southbound freight bill, while part of the appraised value of the assembled merchandise, are not part of its dutiable value, as these charges should be included in the value of the U.S. components/assists provided by Gator to the assemblers. A report received from the National Import Specialist Division in New York, dated September 20, 1994, concurs with counsel's position.

ISSUE:

Whether U.S. handling and documentation charges are part of the value of the exempted U.S. components.

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 ("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 packing and the value, apportioned as appropriate, of any assist. 19 U.S.C. 1401a(b)(1). Although the audit report concludes that transaction value does not apply, it is unclear from your submission whether you agree. In view of the fact that in your memorandum you have cited to the definition of the "price actually paid or payable" found in the Customs Regulations (19 CFR 152.102(f)), we will assume, for purposes of this response, that the use of transaction value is not precluded.

The term "price actually paid or payable" is defined as "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." 19 U.S.C. 1401a(b)(4)(A). The price actually paid or payable should be determined "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."

The term "assist" is defined by section 402(h)(1) of the TAA as that which is "supplied directly or indirectly, and free of charge or at a reduced cost, by the buyer of the imported merchandise for use in connection with the production or sale for export to the United States" of imported merchandise. Gator provides assists, consisting of U.S. components, to the foreign assemblers of the imported merchandise.

Regarding the value of exempted components, section 10.17, Customs Regulations (19 CFR 10.17) provides:

The value of fabricated components to be subtracted from the full value of the assembled article is the cost of the components when last purchased, f.o.b. United States port of exportation or point of border crossing as set out in the invoice and entry papers, or, if no purchase was made, the value of the components at the time of their shipment for exportation, f.o.b. United States port of exportation or point of border crossing, as set out in the invoice and entry papers. However, if the appraising officer concludes that the cost or value of the fabricated components so ascertained does not represent a reasonable cost or value, then the value of the components shall be determined in accordance with section 402 or section 402a, Tariff Act of 1930, as amended (19 U.S.C. 1401a, 1402).

(emphasis added).

As previously noted, the cut components are not purchased by Gator. Instead, Gator purchases the fabric and cuts the fabric into components at its own U.S. facility. In accordance with 19 CFR 10.17, quoted above, where there is no purchase of the components, the value of the components to be subtracted from the full value of the assembled merchandise, will be that at the time of their shipment for exportation, f.o.b. U.S. port of exportation or point of border crossing.

In the instant case we have been asked whether U.S. handling and documentation charges are part of the value of the exempted U.S. components. The U.S. handling and documentation costs are assessed by the southbound shipper in preparing Gator's cut components for shipment to its offshore assembly operation. The U.S. handling charge is assessed for moving the merchandise within the port facility, loading the merchandise onboard the vessel, and lashing and securing the merchandise to make it "seaworthy" for ocean transportation. The documentation charge is assessed for the processing, printing and handling of the documentation for the particular shipment.

Section 152.103(d), Customs Regulations (19 CFR 152.103(d)) provides that the value of an assist to be added to the price actually paid or payable, or to be used as a component of computed value, includes transportation costs to the place of production. Counsel concedes that U.S. handling and documentation charges are "transportation" charges for purposes of calculating appraised value and are included in the appraised value of the assembled merchandise. See also, HRL 544323 dated March 8, 1990 (shipping department costs and packing activities are directly related to the exportation and transportation of the assists to the place of assembly and therefore are includable in the value of the assists under the TAA for purposes of determining appraised value.) What counsel is disputing is whether, pursuant 19 CFR 10.17, cited above, the U.S. handling charges and documentation charges are included in the value of the U.S. components for purposes of determining the dutiable value of the assembled merchandise.

The goods are shipped to the assembler free on board ("f.o.b."). Basing their reasoning on the definition of f.o.b., counsel claims that the disputed charges are a part of placing the goods on board the vessel as they are incurred before the goods achieve f.o.b. status. Thus, according to counsel, the handling and documentation charges are added to the value of the U.S. components. Counsel cites to the primer produced by the International Chamber of Commerce ("ICC"), Guide to Incoterms 1990 (ICC Publication No 461/90, published May 1991 by ICC Publishing S.A.). The section in the primer relating to f.o.b. transactions contains a description of the seller's responsibilities including the obligation to:

Deliver the goods on board the vessel named by the buyer at the named port of shipment on the date or within the period stipulated and in the manner customary at the port.

Although Gator is not a "seller", 19 CFR 10.17, quoted above, provides that the value of the U.S. components should be calculated based upon their value "at the time of their shipment f.o.b. United States port of exportation". Thus, the principles that apply in ascertaining a seller's responsibilities in an f.o.b. transaction apply equally to Gator. Citing further to the guide, counsel points out that "[t]he seller's obligation to place the goods onboard the ship in due time is the essence of the f.o.b. term." (emphasis added). "All costs occurring before the seller has fulfilled his obligation to deliver according to [the delivery terms] are for his account, while further costs are for the account of the buyer." (emphasis in original). For the buyer, "delivery [must be taken] when [the goods] have been placed onboard the vessel named by the buyer at the named port of shipment," (emphasis added), with the seller's obligations fulfilled "by placing the goods onboard the vessel at the loading place."

Counsel argues that the status of the merchandise is not f.o.b. United States port of exportation:

"until such time as it is placed onboard the ship. All costs incurred before that point remain the responsibility of the U.S. inland mover of the merchandise. In other words, they do represent part of the cost of getting the merchandise in condition for shipment f.o.b. United States port of exportation. The amounts charged Gator in U.S. handling and documentation charges are inarguably such costs. Both costs are incurred in advance of the placement of the merchandise onboard the vessel for shipment to Gator's offshore assembly operation. As a result, they do not properly form a part of the dutiable southbound freight component of Gator's cost of assembly."

We agree with counsel. In HRL 542832 dated September 22, 1982 (TAA # 53) Customs ruled that transportation charges to the U.S. port of exportation, while part of the appraised value of the assembled merchandise, are not part of the dutiable value. The instant situation is analogous. For purposes of determining the value of fabricated components to be subtracted from the full value of the assembled article "transportation" charges are to be interpreted in light of the applicable regulation, 19 CFR 10.17, cited above. Because the value of the U.S. components to be subtracted is that "at the time of their shipment for exportation, f.o.b. United States", "transportation" charges such as handling and documentation charges incurred in advance of the placement of the merchandise onboard the vessel for shipment to the offshore assembly operation, accrue to the value of the U.S. components.

Nonetheless, in order to determine the actual amounts associated with the handling and documentation, the freight bill must separately identify these charges. If the handling and documentation charges are not separately identified from the remaining transportation charges, Customs has no alternative but to treat all the transportation charges as a whole, to be included in the dutiable value of the imported merchandise.

HOLDING:

As set forth in 19 CFR 10.17, in instances where no purchase is made of fabricated components, the value of the components to be subtracted from the full value of the assembled merchandise is the value of components at the time of their shipment for exportation, f.o.b. United States port of exportation or point of border crossing. Thus, the value of the subject components does include separately identified U.S. handling and documentation charges. These charges, while part of the transportation costs making up the appraised value of the merchandise, accrue to the value of the U.S. components to be subtracted from the appraised value of the assembled article for purposes of determining dutiable value.

Sincerely,

John Durant, Director
Commercial Rulings Division

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