HQ 547652 - Application for Further Review of Protest No. 2402-98-100002; Dekko Global Enterprises, Inc.; Computed Value - United States International Trade Commision Rulings

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HQ 547652

April 9, 2002

RR:IT:VA 547652 EK

CATEGORY: VALUATION

Port Director
El Paso, Texas

RE: Application for Further Review of Protest No. 2402-98-100002; Dekko Global Enterprises, Inc.; Computed Value

Dear Port Director

This is in regard to the Application for Further Review noted above dated March 26, 1998, concerning the appraisement of electric heating resistors. The imported merchandise was appraised pursuant to computed value, pursuant to 402(e) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA); 19 U.S.C. 1401a(e). There is no dispute that computed value was the proper method of appraising the imported merchandise. The protestant is disputing certain costs which were included in the determination of computed value. We regret the delay in responding.

FACTS:

The importer, Dekko Global Enterprises Inc., (hereinafter referred to as Dekko), imports various products through the Port of El Paso. The merchandise is assembled in Mexico by Dekko’s affiliate, Grupo Dekko Mexico, S.A. de C.V. (hereinafter referred to as Dekko Mexico). Dekko Mexico assembles products for various Dekko affiliates, including Pent Products, Inc., Pent Assemblies, Inc., Lyall Assemblies, Inc., and Dekko Heating Technology. However, Dekko is responsible for all the importations into the United States, including preparing and filing an annual cost reconciliation covering all of the products imported into the United States from Dekko Mexico. Dekko serves as importer of record.

The particular manufacturing facility in Mexico in question in this protest is the Cd. Jarez facility of Dekko Mexico. This facility was completed in the Spring of 1995. As of June, 1995, the facility was operating at approximately 10 percent of total capacity. This percentage increased slowly during the next two years, until August, 1997, when the facility was operating at about 75% capacity.

The transactions covered by this protest are importations by Dekko from Dekko Mexico through the Port of El Paso during 1995 and 1996. These importations were covered by Dekko’s 1995 and 1996 cost submissions. As indicated above, the merchandise was appraised pursuant to computed value.

Regarding the computed value appraisement, certain start-up costs related to the Mexican facility were capitalized by Dekko Mexico. With respect to these capitalized start-up costs, the annual amount depreciated in 1995 and 1996 was included as part of the computed value of the merchandise imported into the U.S. in 1995 and 1996, respectively.

Dekko Mexico incurred additional non-capitalized pre-production training costs as each product line was moved to Mexico. In addition, the company incurred other non-capitalized pre-production costs for such items as electricity, cleaning and maintenance of the facility, and managerial costs. Likewise, certain costs related to the depreciation of the entire building were incurred even though the facility was being under-utilized.

Each of the Dekko affiliates provides various equipment, tools and molds to Dekko Mexico for use in manufacturing product lines. Assembly line workers are hired by Dekko Mexico to work specifically on either Heat Tech’s, Pent’s, Pent Assemblies’ or Lyall’s product lines. Workers are not switched from one company’s production lines to another company’s production lines, and throughout the year, Dekko Mexico allocates its costs among the various affiliates and bills them for these costs. Costs related to supervisory personnel who oversee all the products lines as well as administrative staff whose efforts benefit all products lines are allocated equally among the companies’ product lines. Protestant claims that due to the manner in which Dekko Mexico allocates its costs among these affiliates, and is reimbursed by these affiliates for these costs, the affiliates’ product lines are shown separately on Dekko’s cost submission.

Dekko is protesting the inclusion of the Mexican startup costs and Mexican costs related to Dekko Mexico’s excess capacity in the computed value of the imported merchandise.

ISSUE:

Whether certain startup costs, including training costs, and overhead costs related to excess capacity in a new manufacturing facility are to be included in the computed value of merchandise imported into the United States.

LAW AND ANALYSIS:

The computed value of imported merchandise is defined in section 402(e) of the TAA as:

. . . 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 . . . and (D) the packing costs.

The amount for profit and general expenses is based upon the producer’s records, unless the amounts in the records are inconsistent with those usually reflected in sales of merchandise of the same class or kind as the imported merchandise. The Statement of Administrative Action provides that the amount for profit and general expenses will be based on the commercial accounts of the producer, provided that such accounts are consisted with generally accepted accounting principles applied in the country where the goods are produced.

Dekko claims that pre-production training costs should not be included in the calculation of the computed value of the merchandise. Dekko claims that with regard to these costs, each time a new product line is added for a new affiliate, additional employees are hired for such a product line, and that those employees are dedicated to that particular new line. Dekko indicates that the new employees are not moved around within the overall facility.

This claim does not render the inclusion of the expenses submitted for pre-production training costs in the computed value of the imported merchandise incorrect. These expenses are general expenses that are to be considered in determining computed value. Moreover, as indicated above, the amount for profit and general expenses will be based on the commercial accounts of the producer, provided that such accounts are consisted with generally accepted accounting principles applied in the country where the goods are produced. Dekko did not provide any information or records that these expenses were not carried on the producer’s books as general expenses. No information has been provided to conclude that the inclusion of these expenses is inconsistent with expenses usually reflected in sales of merchandise of the same class or kind as the imported merchandise. These expenses were properly included in the determination of computed value.

In its submission, counsel for Dekko claims that certain non-capitalized pre-production costs for items such as electricity, cleaning and maintenance of the facility, and managerial costs, should be excluded from computed value. However, no argument or evidence has been submitted to substantiate this claim. Therefore, it is our conclusion that Customs properly included these costs in appraising the merchandise pursuant to computed value.

Regarding the expenses incurred for overhead costs related to excess capacity, the rulings cited by Dekko that interpret the “old” value law, i.e., constructed value pursuant to the Tariff Act of 1930, are not relevant in a computed value determination. Rather, HQ Ruling No. 544863 dated September 26, 1994, is controlling in a computed value appraisement regarding this issue. In HQ 544863, various U.S. related costs and non-production costs were held to be general expenses of the producer and included in the computed value of the imported merchandise. The importer’s cost submission included rent for a portion of the assembly facility that had never been utilized. The ruling held that rent for space in the assembly facility, even though the space had never been utilized, consisted of an overhead cost to be included in the cost of fabrication and other processing employed in the production of the imported merchandise.

Counsel for Dekko claims that since the importer did not contest the issue of whether the excess startup costs and pre-production costs were included in the appraised value of the merchandise, then Customs did not consider the issue. We disagree. Customs considered the expenses incurred for a portion of the assembly facility that had not been utilized and clearly determined that these costs constitute overhead costs that are to be included in the cost of production of the imported merchandise.

Regarding the expenses at issue in this case, it is our conclusion that like the expenses in HQ 544863, the overhead costs related to the excess capacity at the importer’s Mexican facility are usual general expenses which are to be included in calculating the computed value of the imported merchandise. Further, no evidence has been submitted to indicate that the amount incurred for general expenses recorded on the foreign assembler’s books are inconsistent with that usually reflected in sales of merchandise of the same class or kind. Therefore, the expenses at issue are appropriately included in the calculation of computed value for the imported merchandise.

HOLDING:

The merchandise was properly appraised by Customs. The protest should be DENIED. In accordance with Section 3A11(b) of Customs Directive 099 35500-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.

Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Virginia L. Brown

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