Assists

HQ 547070 December 21, 1998 VAL RR:IT:VA 547070 DWS CATEGORY: Valuation Port Director of Customs 200 East Bay Street Charleston, SC 29401 RE: Assists Dear Port Director: This is in response to your memorandum (APP-2 OR ENF-13:CT:T:BD) of April 10, 1998, forwarding a request for internal advice, dated January 8, 1998, submitted by counsel for Quoizel Inc. (Quoizel), concerning whether certain component parts constitute assists. Counsel has also submitted to our office a supplemental memorandum dated June 12, 1998. We regret the delay in responding. FACTS: Quoizel imports assembled lamps and lighting fixtures, of Chinese manufacture, into the U.S. and then sells the merchandise to U.S. retail stores. Quoizel’s foreign suppliers are located primarily in China, including Dalian United Stained Glass Co., Ltd., China (Dalian), the manufacturer of the imported merchandise at issue. During the manufacturing process, because Dalian was incapable of producing certain parts to Quoizel’s specifications and within its time constraints, Quoizel requested that a third party manufacturer, Pegtom Industrial Co., Ltd., China (Pegtom), furnish these parts to Dalian. As provided by counsel, these brass components (their part numbers in parentheses) are listed as follows: caps (M251CAXJ), straps (M257SBXJ), cap (M287CAXJ), cap (M313CAXJ), channel (M321CHBJ), washer (M413WSXJ), channel (M466CHBJ), crossbar (M520CBXJ), washer (M618WSXJ), ring (M709RGBJ), ring (M763RGBJ), fitting (M774RGR), ring (M785RGXJ), and washer (M929WSXJ). According to counsel, beginning in September 1993, the components were shipped periodically by Pegtom to Dalian. Upon receiving the components, Dalian incorporated them into the lamps and lighting fixtures it produced for Quoizel. soldered or otherwise permanently attached to the shade to complete the lamp or lighting fixture. The components were attached to each lamp or lighting fixture, and then shipped to Quoizel. Counsel claims that, at the time of importation into the U.S., the value declared by Quoizel for the subject merchandise did not include the cost of the component parts because neither Dalian nor Quoizel had paid Pegtom for providing the components. While Quoizel and Pegtom agreed upon a price for the components sent to Dalian, Pegtom generally did not bill Quoizel before the merchandise was imported into the U.S. Counsel states that, as of the date of its memorandum to this office (June 12, 1998), Quoizel has not rendered payment to Pegtom for the components. However, counsel has submitted documentation demonstrating that Quoizel owes Pegtom a substantial amount for the production of the components. Because of their concern that the subject components may be dutiable as assists, counsel, in accordance with 19 CFR 162.74, submitted a prior disclosure to your office dated January 8, 1998, requesting Customs to defer the requirement to deposit any additional duties until our office makes a decision concerning the internal advice request. On April 24, 1998, counsel enclosed with a letter to your office additional information, in the form of spreadsheets, concerning the entries involved. This ruling constitutes a response to counsel’s request for internal advice to determine the dutiability of the subject components as assists, and does not address any other issues which may exist in the context of counsel’s prior disclosure, including whether the prior disclosure is valid. ISSUE: Whether Quoizel’s lack of payment of the component parts’ cost of acquisition at the time of entry of the merchandise is relevant in determining whether those component parts constitute assists. LAW AND ANALYSIS: The preferred method of appraising merchandise imported into the U.S. is transaction value pursuant to 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. Section 402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus enumerated statutory additions. Imported merchandise is appraised under transaction value only if the buyer and seller are not related, or if related, the transaction value is deemed to be acceptable. In a telephone conversation with a member of my staff, your office has stated that none of the parties involved are related within the meaning of 19 U.S.C. 1401a(g). One of the statutory additions referred to above is "the value, apportioned as appropriate, of any assist ****." The term "assist" is defined in section 402(h) of the TAA as follows: 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: (i) Materials, components, parts, and similar items incorporated in the imported merchandise. (ii) Tools, dies, molds, and similar items used in the production of the imported merchandise. (iii) Merchandise consumed in the production of the imported merchandise. (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. Section 152.103(d)(1), Customs Regulations [19 CFR 152.103(d)(1)], states: (d) Assist. If the value of an assist is to be added to the price actually paid or payable, or to be used as a component of computed value, the port director shall determine the value of the assist and apportion that value to the price of the imported merchandise in the following manner: (1) If the assist consist of materials, components, parts, or similar items incorporated in the imported merchandise, or items consumed in the production of the imported merchandise, acquired by the buyer from an unrelated seller, the value of the assist is the cost of its acquisition. If the assist were produced by the buyer or a person related to the buyer, its value would be the cost of its production. In either case, the value of the assist would include transportation costs to the place of production. Your office contends that, although Quoizel did not pay for the components at the time of entry, they have incurred costs which are payable, and the component parts provided by Quoizel constitute assists. Counsel argues that the component parts do not constitute assists because the provision of those components is not a paid cost at the time of entry. In the instant case, Quoizel contracted with a third party, Pegtom, to provide Dalian with component parts for use in Dalian’s manufacture of lamps and lighting fixtures. The finished lamps and lighting fixtures are imported into the U.S. by Quoizel for sale to retailers. Therefore, in accordance with section 402(h)(i) of the TAA, because Quoizel, the buyer of the lamps and lighting fixtures that it imports into the U.S., obtains and supplies the component parts to be incorporated into the merchandise, those component parts constitute assists. According to 19 CFR 152.103(d)(1), the value of the assists is the cost of their acquisition including transportation costs. See HQ 544323, dated March 8, 1990. As stated above, in their January 8, 1998, submission to your office, counsel submitted documentation demonstrating that Quoizel owes Pegtom a substantial amount for the production of the components. Therefore, it is our understanding that the cost of acquiring the component parts is known. It is inconsequential whether, at the time of entry of the goods, the importer has yet to actually pay the third party producer the amount owed for providing the component parts. HOLDING: The subject component parts, provided by Pegtom to Dalian and billed to Quoizel, constitute assists regardless of whether their cost of acquisition has been paid for at the time of entry. You are to mail this decision to the internal advice applicant no later than 60 days from the date of this letter. On that date, 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, Thomas L. Lobred Chief, Value Branch