HQ W563543 - Consideration of whether master gauges are assists - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 2007 HQ Rulings > HQ W56282~1 - HQ W966867 > HQ W563543

Previous Ruling Next Ruling
HQ W563543

November 17, 2006

RR:CTF:VS W563543 HEF

CATEGORY: VALUATION

Port Director
U.S. Customs and Border Protection
P.O. Box 619050
Dallas Fort Worth Airport, Texas 75261-9050

RE: Consideration of whether master gauges are assists

Dear Port Director:

This is in response to a request for internal advice dated July 10, 2006, made on behalf of XXXXXX XXXXXXXX XXXXXXXXXX XXXX (hereinafter the importer). The issue is whether master gauges provided free of charge or at reduced cost by the importer to the foreign supplier that are used to calibrate certain tools for the production of aircraft parts constitute assists. Counsel for the importer has requested confidential treatment of the importer’s identity pursuant to 19 C.F.R. § 177.2(b)(7). Customs and Border Protection (“CBP”) will extend confidential treatment in accordance with the request dated July 10, 2006. Information determined to be confidential was bracketed in the confidential version and has been redacted and substituted in the public version.

FACTS:

The importer manufactures wings, fuselage subassemblies, empennages, nacelles, thrust reversers, cabin structures, and other components for prime manufacturers of aircraft. The importer sometimes subcontracts with foreign suppliers for the manufacture of components, parts, or assemblies that the importer uses in its manufacturing process. In such instances, the importer may provide a master gauge to the foreign supplier free of charge or at a reduced cost.

A master gauge is a tool used by the importer and its suppliers to calibrate tools on assembly lines. Master gauges normally test a single feature such as a hole pattern, hinge line, or a contour on a tool. Master gauges, for example, may be used to determine if a machine tool on an assembly line will produce a part that has hinge line features within tolerance. Master gauges may also be used for periodic tolerance inspections on machine tools. The importer’s manual identifies master gauges as “[p]hysical toolsused to establish a dimensional standard and to define/control contractual I&R [Interchangeable and Replaceable] features and interfaces throughout the production tool family.” The importer’s manual includes a section proscribing the use of master tools in the direct manufacture or inspection of parts and assemblies.

Counsel for the importer asserts that the master gauges never make contact with the ultimate import, and, in fact, they cannot because the aircraft part must be removed in order for the master gauge to fit into the appropriate space. Counsel also states that master gauges are not used on every tool that has testable features and that there are other methods available for testing tool features, such as lasers or other means of digital verification.

ISSUE:

Whether master gauges, provided by the importer free of charge or at reduced cost to its foreign suppliers, constitute assists under section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a).

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 basis 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 five enumerated additions including the value, apportioned as appropriate, of any assist. 19 U.S.C. § 1401a(b)(1). In order for imported merchandise to be appraised under the transaction value method it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States.

One of the enumerated statutory additions is an “assist.” An “assist” is defined in 19 U.S.C. § 1401a(h)(1) as follows:

(1)(A) The term “assist” means 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:

Materials, components, parts, and similar items incorporated in the imported merchandise. Tools, dies, molds, and similar items used in the production of the imported merchandise. Merchandise consumed in the production of the imported merchandise. 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.

The master gauges are not incorporated into the merchandise, nor are they consumed in the production of the merchandise. Furthermore, they do not constitute engineering, development, artwork, design work, or plans and sketches. Therefore, in order to determine that the master gauges are assists, we must find that they are tools, dies, molds, or similar items “used in the production of the imported merchandise.” See 19 U.S.C. § 1401a(h)(1)(A)(ii).

The master gauges may be used to calibrate tools on assembly lines. Master gauges normally test a single feature such as a hole pattern, hinge line, or a contour on a tool. In C.S.D. 89-127, dated May 30, 1989, CBP held that test equipment provided by the U.S. importer, free of charge, to the foreign manufacturer and used for testing the integrity of finished instruments before such instruments were shipped to the United States, did not constitute an assist within the meaning of section 402(h)(1)(A) of the TAA. That decision was based on the fact that the testing equipment was used on the finished instruments, was not used in the production of the merchandise within the meaning of 19 U.S.C. § 1401a(h)(1)(A)(ii), and did not fall within any of the other assist categories.

However, in Headquarters Ruling Letter (“HRL”) 544508, dated June 19, 1990, which reconsidered C.S.D. 89-127, CBP held that testing equipment provided free of charge to the foreign manufacturer by the U.S. importer may constitute an assist within the meaning of 19 U.S.C. § 1401a(h)(1)(A)(ii), if it can be shown that the equipment was used for testing performed during the production process and that such testing, due to the nature of the finished product, was essential to production of the product. The facts in HRL 544508 concerned testing of the individual components to be assembled, prior to production, and testing throughout the assembly and manufacturing process. The testing equipment was found to be an assist within the meaning of 19 U.S.C. § 1401a(h)(1)(A)(ii).

In Texas Apparel Co. v. United States, 12 Ct. Int’l Trade 1002, 698 F. Supp. 932 (1988), aff’d, 883 F.2d 66 (Fed. Cir. 1989), cert. denied, 110 S.Ct. 728 (1990), the court affirmed CBP’s position that even general purpose equipment may be considered assists under 19 U.S.C. § 1401a(h)(1)(A)(ii), if such equipment is used directly in the production of the imported merchandise. CBP, in determining the appraised value on the basis of computed value, had included the cost of sewing machines as an assist. Id. The plaintiff had claimed that the inclusion of the cost of the sewing machines was an error because the machines were not “tools, dies, molds, and similar items used in the production of the imported merchandise” as provided for in the statute. Id. The court found that including the value of the sewing machine, which was essential to the fabrication of the apparel, fairly and accurately reflected the cost of producing the imported merchandise. Id. at 1008.

In applying the court’s decision to this case, we must determine whether the master gauges provided by the importer are used directly in the production of the imported merchandise. In HRL 544480, dated September 21, 1990, the buyer provided free of charge to the seller maintenance tools and equipment that were used in the maintenance and production of the tools that were used to produce the imported merchandise. CBP held that maintenance tools and equipment related to the production and maintenance of the tools, themselves, rather than the production of the imported merchandise are not considered assists within the meaning of 19 U.S.C. § 1401a(h)(1)(A)(ii). Similarly, in Aris Isotoner Gloves, Inc. v. United States, 14 Ct. Int’l Trade 693 (1990), the importer furnished free of charge to the foreign manufacturer large and small drill presses for making machine tools that were used in the production of the imported merchandise. The court determined that the presses were not used “directly” in the production of the imported merchandise, and thus, the presses were not considered assists within the meaning of 19 U.S.C. § 1401a(h)(1)(A)(ii). Id.

In the instant case, the master gauges are not used to test or calibrate the imported articles. Rather, the master gauges may be used to calibrate tools used in the production of the imported merchandise. They are not used directly in the production of the imported merchandise. Accordingly, the master gauges are not assists within the meaning of 19 U.S.C. § 1401a(h)(1)(A)(ii).

HOLDING:

Based on the specific facts of this case, we find that the master gauges provided free of charge or at a reduced cost by the importer to the foreign supplier are not used directly in the production of the imported merchandise. As such, the master gauges do not constitute assists within the meaning of 19 U.S.C. § 1401a(h)(1)(A)(ii).

You are to mail this decision to counsel for the internal advice applicant no later than sixty days from the date of this letter. Sixty days from the date of this letter, the Office of Regulations and Rulings will take steps to make this decision available to CBP personnel and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, and by means of the Freedom of Information Act as well as by other means of public distribution.

Sincerely,

Monika R. Brenner, Chief
Valuation and Special Programs Branch

Previous Ruling Next Ruling