19 U.S.C. § 1401a(h)(1)(A); Assists; Apportionment of Assists

HQ H044163 January 13, 2009 OT-RR:CTF:VS H044163 GOB CATEGORY: Valuation Donald S. Stein, Esq. Greenberg Traurig 2101 L Street, N.W. Suite 1000 Washington, DC 20037 RE: 19 U.S.C. § 1401a(h)(1)(A); Assists; Apportionment of Assists Dear Mr. Stein: This is in response to your correspondence of October 7, 2008 to the National Commodity Specialists Division on behalf of BIC USA, Inc. (“BIC”), requesting a valuation ruling. This office received your submission on November 13, 2008. You made an additional submission on November 25, 2008. Our ruling follows. FACTS: You describe the pertinent facts as follows. Through an affiliated manufacturer, BIC manufactures certain bottled fluid products in the United States. It then sells these products in the U.S. and also exports the products to affiliates around the world. BIC intends to cease production in the U.S. and close its production facility. It will shift production to an unaffiliated company outside of the U.S. BIC will enter into an agreement to lease the equipment to the unaffiliated manufacturer which will produce the goods for BIC under a separate Manufacturing & Supply Agreement. Under the terms of the Equipment Lease Agreement, starting in January 2009, the manufacturer will remit to BIC an annual rental payment of $5,000 for a five-year period. Over the period of the lease, after depreciation the machinery and equipment will have a value of over $5,000. You request that, if we determine that the proposed leasing of the machinery and equipment at a price below its depreciated value is an assist within the meaning of 19 U.S.C. § 1401a(h)(1)(A), we confirm that the following methodology for calculating the value of the assist is acceptable: 1. BIC has determined the beginning of the year 2009 value of the used machinery and equipment (BIC will begin to import the goods at this time). 2. From this beginning year 2009 value, BIC will deduct the $5,000 annual rental payment to obtain the value of the assist for 2009 (i.e., the difference between the 2009 beginning year value and the $5,000 payment will be the value of the assist for calendar year 2009). 3. BIC will add the value of the assist calculated for 2009 to the value of the imported goods in 2009, by adding the value to the first entry of the subject goods filed during 2009. 4. BIC will subtract the annual depreciation amount from the 2009 beginning year value of the machinery and equipment to arrive at a 2009 year-end value of the machinery and equipment. 5. The 2009 year-end value of the machinery and equipment will be the 2010 beginning year value. 6. These steps will be repeated annually to calculate the annual value of the assist for the years 2010 through 2013. With your submission you have provided a schedule which shows the depreciation of the leased machinery and equipment and the proposed calculation of the value of the assist, as described above. All of the subject imported goods will be classified in the same provision in the Harmonized Tariff Schedule of the United States (“HTSUS”) and have the same rate of duty. ISSUES: The issues presented are: (I) Whether the provision of machinery and equipment to the manufacturer, as described above, constitutes an assist within the meaning of 19 U.S.C. § 1401a(h)(1)(A). (II) If such provision of machinery is an assist, whether the method proposed by BIC to value the assist is acceptable. 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 (19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined as the "price actually paid or payable for the merchandise when sold for exportation to the United States," plus certain enumerated additions, including “the value, apportioned as appropriate, of any assist.” 19 U.S.C. § 1401a(b)(1)(C). For the purpose of this ruling we assume that transaction value is the proper basis of appraisement. 19 U.S.C. § 1401a(h)(1)(A) provides as follows: 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: (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. See also 19 CFR § 152.103. Section 152.103(e), CBP Regulations (19 CFR 152.103(e)) provides as follows: (e) Apportionment. (1) The apportionment of the value of assists to imported merchandise will be made in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles. The method of apportionment actually accepted by Customs will depend upon the documentation submitted by the importer (emphasis added). If the entire anticipated production using the assist is for exportation to the United States, the total value may be apportioned over (i) the first shipment, if the importer wishes to pay duty on the entire value at once, (ii) the number of units produced up to the time of the first shipment, or (iii) the entire anticipated production. In addition to these three methods, the importer may request some other method of apportionment in accordance with generally accepted accounting principles. If the anticipated production is only partially for exportation to the United States, or if the assist is used in several countries, the method of apportionment will depend upon the documentation submitted by the importer. [Emphasis supplied.] In Aris Isotoner Gloves, Inc. v. United States, 14 CIT 693, 696 (1990), the court cited Texas Apparel Co. v. United States, 12 CIT 1002, 698 F. Supp. 932 (1988), aff’d 883 F. 2d 99 (CAFC 1989), cert. denied 110 S. Ct. 728 (1990), in recognizing the distinction between machinery which works directly on the merchandise or contributes directly to its manufacture and machinery which is not used directly in the production of merchandise itself. The court held that the plaintiff was entitled to recovery as to the non-production machinery, which was not directly used in producing imported merchandise, while machinery used directly in the production of imported merchandise constituted an assist under 19 U.S.C. 1401a(h)(1)(A). The court in Aris noted that the reasoning in Texas Apparel went beyond mere deference to Customs and Border Protection (“CBP”) and also noted that the court in Texas Apparel examined the legislative history of the Trade Agreements Act, concluding that Congress did not intend a narrow or restrictive view of the term “assist.” Texas Apparel, 12 CIT at 1007, 698 F. Supp. at 935. The court in Aris quoted the Texas Apparel opinion’s reference to the definition of a “tool” as “an implement or object used in performing an operation or carrying on work of any kind.” 12 CIT at 1008, 698 F. Supp. at 937, quoting Webster’s Third New International Dictionary (1981). In HQ 542122, dated September 4, 1980 (TAA No. 4), CBP (then the U.S. Customs Service) held that general purpose equipment furnished free of charge or at a reduced cost and used abroad in the production of merchandise imported into the U.S. was an assist within the meaning of 19 U.S.C. § 1401a(h)(1)(A)(ii), as “[t]ools, dies, molds and similar items used in the production of the imported merchandise.” We find here that the provision of the subject used machinery and equipment to the manufacturer constitutes an assist within the meaning of 19 U.S.C. § 1401a(h)(1)(A)(ii) to the extent the value of such provision exceeds the annual $5,000 fee for leasing the machinery and equipment. You have provided with your submission a schedule which shows the depreciation of the leased machinery and equipment and the proposed calculation of the value of the assist. In HQ 542302, dated February 27, 1981 (TAA No. 18), CBP held that general purpose machinery may be apportioned on a yearly basis at the depreciated cost reflected on the books of the importer, provided that the depreciation is in accordance with generally accepted accounting principles. Similarly, we find here that the value of the machinery and equipment which exceeds the annual $5,000 fee may be apportioned as proposed in your request provided that such apportionment and depreciation are in accordance with generally accepted accounting principles. We note that all of the subject imported goods will be classified in the same HTSUS provision and have the same rate of duty. HOLDINGS: The provision of the subject used machinery and equipment to the manufacturer constitutes an assist within the meaning of 19 U.S.C. § 1401a(h)(1)(A)(ii) to the extent the value of such provision exceeds the annual $5,000 fee for leasing the machinery and equipment. The value of the machinery and equipment which exceeds the annual $5,000 fee may be apportioned as proposed in your request provided that such apportionment and depreciation is in accordance with generally accepted accounting principles. A copy of this ruling letter should be attached to the entry documents filed at the time the subject goods are entered. If the documents have been filed without a copy of this ruling letter, the ruling letter should be brought to the attention of CBP official at the port of entry. Sincerely, Monika R. Brenner Chief Valuation & Special Programs Branch