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HQ 548690

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April 4, 2006

VAL RR:CTF:VS 548690 FP

CATEGORY: VALUATION

Mr. Jeff Tooze
Columbia Sportswear
14375 N.W. Science Park Drive
Portland, Oregon 97229

RE: Transaction value; price actually paid or payable; shipping labels and data management services

Dear Mr. Tooze:

This is in response to your letter dated June 27, 2005, on behalf of Columbia Sportswear Company, in which you seek a determination concerning the appraisement of merchandise pursuant to the trans-action value method, particularly addressing whether the cost of certain billable services should be part of the price actually paid or payable or an addition thereto.

FACTS:

Columbia Sportswear Company ("Columbia") is an importer primarily of apparel and footwear products. According to the information provided, Columbia has two distribution centers in the U.S. where the imported goods are received and re-distributed to various wholesale customers. Columbia also directly ships merchandise from various foreign factories to several wholesale customers' distribution centers, completely bypassing its own U.S. distribution center.

Columbia applies UCC-128 (a labeling standard with very high-density barcode symbols) shipping labels (the "labels") to cartons at its U.S. distribution centers after goods are imported, received and on their way out to its various U.S. wholesale customers. Each label uniquely identifies a carton and provides the capability to electronically scan and capture shipping related information used to retain and transfer shipping data. The label is only applied to the master carton, not the individual products or their respective individual packages inside the shipping carton. A sample of a standard label was submitted together with the ruling request.

Columbia’s customer receives the carton with the label, scans the large bar code at the bottom of the label, and their system recognizes this carton as associated with a carton sent on an electronic data interchange ("EDI") advance ship notice ("ASN") file, uniquely identifying the carton and its contents to a particular shipment. Columbia also receives an ASN file via EDI from its foreign consolidator on all import shipments, which is ultimately the data it uses to compare with actual goods received at its distribution center, but without the use of the labels.

Some of Columbia’s direct ship customers are interested in having the foreign factory place the same type of label that Columbia applies in its U.S. distribution center to make the receiving process on their end more efficient and much less likely to have variances or errors. To fulfill their request, we are informed that Columbia would contract with a unrelated third party located in the U.S. to manage the label data ("data management service") for shipments moving direct from the foreign factory to its customer's distribution center in the U.S.

The requester wants to determine whether the amounts it will pay to an unrelated third party for the following billable services is part of the price actually paid or payable or an addition thereto:

(1) Data management fee for ASN: This service is billed by the third party and paid by Columbia when the third party sends Columbia the carton content detail provided by the factory and matched with Columbia’s initial production order data. The service is strictly related to sending, receiving and managing data.

(2) UCC-128 labels: If the foreign factory does not already have a scanning and labeling operation, the factory would manually input the carton content details into the third party system and the third party will send the factory labels for them to apply to the shipping cartons. The labels could be printed and sent from either the U.S. or a foreign country.

The requester claims that the labels are not necessary for the merchandise to be received at the ultimate destination of the shipment. The label and EDI ASN data management make the receiving process in the U.S. more efficient and less likely to have variances or errors. Based on the information provided by the requester, the merchandise is packed in condition ready for export to the United States prior to the attachment of the optional labels.

ISSUE:

Whether the amounts paid by Columbia to the unrelated third party for shipping labels and data management are part of the price actually paid or payable or an addition thereto as packing costs.

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 is transaction value, which is defined as the "price actually paid or payable for merchandise when sold for exportation to the United States," plus certain enumerated additions, including the packing costs incurred by the buyer with respect to the imported merchandise (§ 402(b)(1)(A)). For purposes of this decision we will assume that transaction value is the appropriate method of appraisement.

The "price actually paid or payable" is further defined in § 402(b)(4)(A) of the TAA as 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 the imported merchandise by the buyer to, or for the benefit of the seller."

Numerous court cases have addressed the meaning of the term "price actually paid or payable". In Generra Sportswear Co. v. United States, 8 CAFC 132, 905 F.2d 377 (1990), the court considered whether quota charges paid to the seller on behalf of the buyer were part of the price actually paid or payable for the imported goods. In reversing the decision of the lower court, the appellate court held that the term "total payment" is all-inclusive and that "as long as the quota payment was made to the seller in exchange for merchandise sold for export to the United States, the payment properly may be included in transaction value, even if the payment represents something other than the per se value of the goods."

In Chrysler Corporation v. United States, 17 CIT 1049 (1993), the Court of International Trade applied the Generra standard and determined that although tooling expenses incurred for the production of the merchandise were part of the price actually paid or payable for the imported merchandise, certain shortfall and special application fees which the buyer paid to the seller were not a component of the price actually paid or payable. With regard to the latter fees, the court found that the evidence established that the fees were independent and unrelated costs assessed because the buyer failed to purchase other products from the seller and not a component of the price of the imported engines.

Accordingly, it has been Customs position that based on Generra, there is a presumption that all payments made by a buyer to a seller are part of the price actually paid or payable for the imported merchandise. However, this presumption may be rebutted by evidence which clearly establishes that the payments, like those in Chrysler, are completely unrelated to the imported merchandise.

The charges paid for the labels and data management services described above are not part of the price actually paid or payable because they are not paid by the buyer to or for the benefit of the seller of the imported merchandise. Accordingly, we must determine whether they would be an addition to the price actually paid or payable as packing costs.

The term packing costs is defined in TAA § 402(h)(3) as the cost of all containers and coverings of whatever nature and of packing, whether for labor or materials, used in placing merchandise in condition, packed ready for shipment to the United States.

In Headquarters Ruling Letter 542834, dated July 20, 1982, we noted that the phrase "packed ready for shipment to the United States" was analogous to the merchandise being "in seaworthy condition." Therefore, in that case, services performed which were incident to placing the merchandise packed ready for shipment to the United States were held to be dutiable as "packing costs." Costs "incurred subsequent to these operations, however, [...] are not added to the transaction value" Id. (emphasis supplied). Thus, the costs incurred subsequent to the merchandise attaining that status were held to be not dutiable.

It is our opinion that the two billable services identified above are not packing costs as defined in TAA § 402(h)(3) because they incur after the merchandise is packed ready for shipment to the United States.

Consequently, the cost of the labels and data management service would not need to be added to the transaction value of the imported merchandise.

HOLDING:

Based on the information and samples submitted, the labels do not constitute packing costs as defined by § 402(h)(3) of the TAA, and as such would not need to be added to the transaction value of the instant merchandise.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs official handling the transaction.

Sincerely,

Monika R. Brenner, Chief

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