Laser Scanner/Verifiers; Assists

HQ 547451 October 22, 1999 RR:IT:VA 547451 DWS CATEGORY: Valuation Mr. Bob King Meijer, Inc. 2929 Walker Avenue, N.W. Grand Rapids, MI 49544 RE: Laser Scanner/Verifiers; Assists Dear Mr. King: This is in response to your letter dated July 20, 1999, requesting a ruling concerning whether certain laser scanner/verifiers constitute assists. Based upon the format of your letter, it is our understanding that this ruling will apply to prospective shipments of merchandise. FACTS: For most of its imported products, Meijer, Inc. (“Meijer”), provides its buying agent, Janco Industries, Inc. (“Janco”), a computer disk containing U.S.-produced artwork, including packaging graphics such as UPC bar codes. Janco gives the disk to the product manufacturer, who then provides the disk to their printing vendor for production of the packaging. The manufacturer pays the printing vendor directly for its work, and the cost of the printing is included in the price Meijer pays the manufacturer for the product. You state that, at checkout lanes in Meijer’s retail stores, problems have occurred in scanning the UPC bar codes on the imported products’ packaging. To correct this problem, Meijer will be providing Janco, free of charge, four RJS laser scanner/verifiers (model no. L1000). This equipment will be used by Janco in its Hong Kong, Taiwan, and Singapore offices to scan and verify the UPC bar codes on printed corporate brand label samples, headercard samples, and box samples which are produced by the printing vendor referenced above. The samples will not contain a product during these scan tests. Package samples which cannot be scanned will be refused by Janco before the packaging is delivered to the product manufacturer. The printing vendor will be required to provide packaging printed with UPC bar codes which may be properly scanned by the laser scanner/verifiers and approved by Janco.  ISSUE: Whether the laser scanner/verifiers constitute assists as set forth in section 402(h)(1)(A) of the TAA. 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. Assists constitute one of these additions. See section 402(b)(1)(C) of the TAA. The term "assist" is defined in section 402(h)(1)(A) 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. In C.S.D. 89127, dated May 21, 1990, Customs 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 U.S., 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 and was not used in the production of the merchandise within the meaning of section 402(h)(1)(A)(ii), and did not fall within any of the other assist categories. However, in HQ 544508, dated June 19, 1990, which reconsidered C.S.D. 89127, Customs 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 TAA 402(h)(1)(A) 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 HQ 544508 concerned testing of the individual components to be assembled, prior to production, and testing throughout the assembly and manufacturing process. No product was sold or shipped without thorough testing. The testing equipment was found to be an assist within the meaning of section 402(h)(1)(A)(ii) of the TAA. In HQ 544508, referenced above, we stated: [i]t is our opinion that the language "similar items used in the production of the imported merchandise," as that language is used in category (ii) of the assist provision, was intended to include as assists equipment that, like tools, dies and molds, directly contributes to the final product. In Texas Apparel Co. v. U.S., 12 CIT 1002, 698 F. Supp. 932 (1988), aff'd, 883 F.2d 66 (CAFC 1989), cert. denied, 110 S.Ct. 728 (1990), the court affirmed Customs position that even general purpose equipment may be considered assists under section 402(h)(1)(A)(ii) of the TAA, if such equipment is used directly in the production of the imported merchandise. Customs, in determining the appraised value on the basis of computed value, had included an addition for the cost of sewing machines as an assist. 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. 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. See HQ 544655, dated June 13, 1991. In this case, Meijer will be providing the laser scanner/verifiers to Janco to test that UPC bar codes are functioning as they should. Janco will perform this “quality control” and only approve those UPC bar codes which are capable of being scanned. The testing of the UPC bar codes is performed during the production process, before the packaging has been sent to the manufacturer and the products have been packaged. The non-defective UPC bar codes will appear on the packaging of the finished product produced by the manufacturer and purchased by Meijer. Therefore, the laser scanner/verifiers will directly contribute to the final product, in that they will assist in ensuring that Meijer receives finished products which function in every way, including the proper functioning of the UPC bar codes on each product’s packaging. If the UPC bar codes are defective, then they will not be properly scanned in Meijer’s retail stores, thereby disrupting business. Consequently, we find that the laser scanner/verifiers constitute assists as defined in section 402(h)(1)(A)(ii) of the TAA, in that they will be used in the production of the imported merchandise. The costs of the laser scanner/verifiers are additions to the price actually paid or payable for the imported merchandise. HOLDING: The laser scanner/verifiers constitute assists as set forth in section 402(h)(1)(A) of the TAA. Sincerely, Thomas L. Lobred Chief, Value Branch