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HQ 548242

February 19, 2003

RR:IT:VA 548242 CC

CATEGORY: VALUATION

John B. Pellegrini, Esq.
Ross & Hardies
Park Avenue Tower
65 East 55th Street
New York, NY 10022-3219

Dear Mr. Pellegrini:

This is in response to your letter of November 25, 2002, on behalf of The Timberland Company, requesting a ruling concerning the apportionment of assists.

FACTS:

You state that the assists consist of molds Timberland provides to vendors of footwear at no charge. Timberland runs two footwear seasons per year: October-March and April-September. Because Timberland sells a substantial portion of its footwear in overseas markets, and the footwear is made with the same molds used to make footwear imported into the United States, Timberland is not able to provide the correct value of the assists until a season is completed. Timberland does not know the relative percentage of footwear made with the molds that is imported into the United States. In addition, in some instances the full cost of the molds will not be available because some of the mold makers will not have submitted final invoices at the time the first shipment of a season is made. Therefore, the correct value of the assist is available only on a post-entry basis.

In the past, Timberland has relied on the reconciliation process to apportion the assists. In utilizing reconciliation, however, Timberland did not flag all of the relevant entries, but instead flagged a single entry, usually the first entry in a season. The selected entry was reconciled then at the end of the season when all information was available. Timberland has been informed that this procedure will no longer be accepted, and that in the future all affected entries must be flagged for reconciliation.

In lieu of using reconciliation, Timberland proposes that it designate the first entry of a particular model in a season as the vehicle for reporting the mold assists applicable to that model. Timberland would request extension of liquidation pursuant to 19 CFR § 159.12(a)(ii) and submit assist data to the port director in a Supplemental Information Letter (SIL) prior to liquidation. You argue that this technique would be consistent with the practice of loading all assists on the first entry in accordance with 19 CFR § 152.103(e).

ISSUE:

When the value of an assist is not known at the time of the first entry of a series of entries, may the entire value of the assist be apportioned to the first entry, either through reconciliation or a SIL, by the first entry remaining unliquidated until the assist information is available, whereas the related entries are liquidated.

LAW AND ANALYSIS:

Pursuant to 19 CFR § 152.103(e), if the entire anticipated production in which an assist is used is for exportation to the United States, the total value of the assist may be apportioned in one of several ways, to include apportionment over the first shipment if the importer wishes to pay duty on the entire value at once. However, Customs has the authority under 19 CFR § 152.103(e)(1) to accept or reject a proposed apportionment method. See Headquarters Ruling Letter (HRL) 545031, dated June 30, 1993, and HRL 544194, dated May 23, 1988. An apportionment method may be accepted if it allows the apportionment of the value of assists to be made in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles (GAAP). See Statement of Administrative Action (SAA) and 19 CFR § 152.103(e)(1). In addition, the method of apportionment actually accepted by Customs will depend upon the documentation submitted by the importer. 19 CFR § 152.103(e)(1).

Timberland has been using reconciliation and flagging only one entry to cover all of the entries to which an assist applies. You have been informed, presumably at the port level, that utilizing this method will no longer be permitted.

Concerning reconciliation, the ACS Reconciliation Prototype: A Guide to Compliance, Version 3.0, March 2003, states the following at page 7:

The ACS Reconciliation Prototype will serve as the exclusive means for reconciling post-summary adjustment to dutiable value, . Any party who elects to reconcile entries pursuant to 19 USC 1484(b) may do so only through this prototype. It will replace the processes of reconciling entry summaries under block appraisement/liquidation, in which the liquidation of one or several entries affects multiple entries for an entire period. Previous methods of accomplishing similar post-entry adjustments are no longer permitted.

See also, Revised National Customs Automation Program Test Regarding Reconciliation, published in the Federal Register on February 6, 1998, 63 FR 6257.

We agree with the port that the method Timberland was utilizing should not be permitted. What Timberland was doing was reconciling entry summaries under block appraisement, in which the liquidation of one or several entries affected multiple entries for an entire footwear season. Consequently, Timberland should no longer utilize this procedure.

In lieu of the above procedure, Timberland proposes using Supplemental Information Letters (SILs) to do what it has previously been doing under reconciliation: leaving one entry, which affects multiple entries, unliquidated to apportion assists to it.

SILs are stated to be an alternative to reconciliation in the ACS Reconciliation Prototype: A Guide to Compliance. It states, however, concerning SILs, the following at page 8:

If an entry summary needs correction after filing, the Supplemental Information Letter (SIL) may be used. The SIL can cover amendments that result in requests for refunds or the submission of additional monies owed prior to liquidation.

The SIL typically address amendments on elements that could have been determined at the time of entry, as opposed to issues that are reasonably indeterminable at that time. Filers who use SILs excessively may be judged as failing to exercise reasonable care and may be penalized. Customs will monitor the volume of SILs and will take appropriate action should excessive use be observed.

See also, Supplemental Information Letter, ABI Administrative Message, dated August 1, 1997.

In this matter, the amount of the assists cannot be determined at the time of entry. Consequently, use of SILs for this situation is not what SILs are typically used for. In addition, the routine use of SILs in this matter might lead Customs to determine that Timberland was not using reasonable care and lead to penalty actions. Timberland has requested that it request only one entry remain unliquidated and submit assist information by a SIL on that entry. This again would be using block appraisement, which is not permitted. If Timberland wishes to use SILs, it will have to request that all entries remain unliquidated and then file SILs on each entry once it knows the amount of the assist.

Finally, when the amount of the assist is not known until post-entry, 19 CFR § 152.103(e) does not allow the apportionment to one unliquidated entry, while the related entries are liquidated. 19 CFR § 152.103(e) contemplates that the value of the assist is known at the time the first entry is made. Without knowing what the value of the assist is, it is impossible to determine a method for apportioning the assists on the first entry. In addition, if the first entry is unliquidated and the remaining entries are liquidated, the first entry, in effect, becomes the last entry, and the assists are being apportioned to the last entry. That is not a method contemplated by 19 CFR § 152.103(e).

HOLDING:

When the value of an assist is not known at the time of the first entry of a series of entries, the entire value of the assist may not be apportioned to the first entry, either through reconciliation or a SIL, by the first entry remaining unliquidated until the assist information is available, whereas the related entries are liquidated.

If you have any questions concerning operational matters relating to this issue and reconciliation, please contact Christine Furgason at 202-927-2293.

Sincerely,

Virginia L. Brown

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