HQ H012412 - Assist; design work; subsequently imported merchandise - United States International Trade Commision Rulings

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HQ H012412

October 16, 2007

VAL-2 OT:RR:CTF:VS H012412 KSG

CATEGORY: VALUATION

Cynthia DeGrange
Import Compliance
Hughes Network Systems
11717 Exploration Lane
Germantown, MD 20876

RE: Assist; design work; subsequently imported merchandise

Dear Ms. DeGrange:

This is in response to your request for a binding ruling dated May 16, 2007, related to the importation of certain circuit board modules.

FACTS:

Hughes Network Systems ("HNS") has engaged with Neonseven in Italy to design a circuit board module which will mount onto another circuit board for a cell phone. HNS will purchase licensing rights for these designs. You state that these modules will eventually be manufactured by a foreign processor which is not related to HNS or Neonseven.

HNS will also purchase certain miscellaneous electronic components from Neonseven, which will be imported into the U.S. and used to build prototype boards at HNS's facility in the U.S. HNS will build the prototypes in the U.S. in order to test the overall design from Neonseven.

After HNS has built the prototypes in the U.S. and tested them, HNS will contract a third party foreign manufacturer to build the modules and will provide the design work to the foreign manufacturer at no cost or at a reduced cost for the purpose of manufacturing the modules. The circuit board modules will then be imported into the U.S.

You believe that the design undertaken by Neonseven is an assist but you are uncertain how to apportion the assist-whether to add the value of the assist to the value of the imported components from Neonseven or to add the value of the assist to the value of the circuit board modules produced by the third party manufacturer that are a result of the design.

ISSUE:

What is the proper treatment of the cost of the design work in this scenario, described above.

LAW AND ANALYSIS:

Imported merchandise is appraised in accordance with section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 ("TAA"), codified at 19 U.S.C. 1401a and the preferred method of appraisement is transaction value. Transaction value is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus amounts for five enumerated statutory additions, including the value apportioned as appropriate, of any assist. 19 U.S.C. 1401a(b)(1)(c). The term "price actually paid or payable" is defined 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 imported merchandise by the buyer to, or for the benefit of, the seller." 19 U.S.C. 1401a(b)(4)(A).

The definition of an assist, set forth at 19 U.S.C. 1401a(h)(1)(A)(iv), states that "any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise including (iv) Engineering, development, artwork, design work, and plans and sketches that are undertaken elsewhere than in the United States and are necessary for the production of the imported merchandise."

In Headquarters Ruling Letter ("HRL") 545278, dated April 7, 1994, the seller provided the design and development of modifications for certain automobile engines in exchange for a fee, and the buyer also agreed to purchase prototypes of the modified engines from the same company. CBP ruled that the payments the buyer made for the design work to the seller were not an assist, but were part of the price actually paid or payable for the imported prototype engines.

In the first transaction that you have described, where Neonseven designs the circuit board modules and HNS imports certain parts into the U.S., the buyer (HNS) does not supply the design work. The design work is performed by the seller in exchange for a fee. Therefore, this would not be treated as an assist with regard to the parts that are imported and used by HNS to produce the prototype.

In the second transaction, where HNS provides the design to a third party foreign manufacturer at either no cost or at a reduced cost, and the foreign manufacturer utilizes the design to produce the circuit board modules, the design is necessary to produce the modules. The circuit board modules are then exported to the U.S. In this scenario, the design work supplied by HNS to the third party foreign manufacturer would be considered an assist and its value should be added to the price actually paid or payable for the imported circuit board modules.

HOLDING:

In the second scenario described above, the design work supplied by HNS to the third party foreign manufacturer would be considered an assist and its value should be added to the price actually paid or payable for the imported circuit board modules.

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 officer handling the transaction.

Sincerely,

Monika R. Brenner
Chief, Valuation & Special Programs Branch

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