Request for a ruling concerning the allocation of freight costs to AF50 Bandsaw assist components for Tormach, Inc.

HQ H304373 January 21, 2020 OT:RR:CTF:VS H304373 tmf CATEGORY: Valuation Matthew Clark Import Services Director SEKO Customs Brokerage, Inc. 1100 Arlington Heights Road Itasca, Illinois 60143 RE: Request for a ruling concerning the allocation of freight costs to AF50 Bandsaw assist components for Tormach, Inc. Dear Mr. Clark: This is in reply to your letter dated June 18, 2019, requesting a ruling on behalf of the importer, Tormach, Inc. of Waunakee, Wisconsin concerning the allocation of freight costs to an assist, i.e., the components of an AF50 Bandsaw, within the meaning of §402(h)(1)(A) of the TAA. FACTS: You state in your submission that Tormach, Inc. imports and markets personal CNC milling machines and accessories. You describe a Computer Numerical Control (“CNC”) as a computer controlled tool such as a lathe, mill, router or grinder. You state the importation of one AF50 Bandsaw consists of the following parts which represent one complete machine-an AF50 Bandsaw and a Control Board for Automatic Bandsaw, which is a U.S. component. In addition, you state that one U.S. origin component, the Control Board for Automatic Bandsaw, is obtained from various vendors or supplied by Tormach, Inc., and that this component, is an “assist” which is incorporated into the finished product that is subsequently exported from China for importation into the United States. You also state that 50 sets cost $600.00 USD to ship to China and one set costs $12.00 per unit. You also claim that freight charges are calculated pro rata for U.S. origin parts which are shipped to Nanjing, China at $12.00 USD per unit. Your client proposes that the value of the shipment is calculated by dividing the cost of exporting 50 sets to the manufacturer, with a set consisting of one of each of the U.S. made components. ISSUE: Whether the proposed allocation of the assist components’ freight cost, which is derived by dividing the cost of exporting 50 sets to the manufacturer in Nanjing, China is acceptable.     LAW AND ANALYSIS: The term "assist" is defined in §402(h)(1)(A) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. §1401a(h)(1)(A)), as: [A]ny 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. It is our position that the language "similar items used in the production of the imported merchandise," as used in category (ii) of the assist provision, above, covers equipment such as tools, dies and molds, all of which directly contribute to the final product. In accordance with 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), we find the AF50 Bandsaw and a Control Board for Automatic Bandsaw are all components that are used in the production of the AF50 Bandsaw. Therefore, we find they are used during the production process and are essential to the "production of the imported merchandise." The U.S.-origin component is an assist within the meaning of §402(h)(1)(A)(ii) of the TAA and its costs are included in the transaction value or the computed value, as the case may be, of the imported merchandise. With regard to the proposed apportionment, pursuant to Section 152.103(d) of the Customs Regulations (19 CFR 152.103(d)), the Center Director shall determine the value of the assist and apportion that value to the price of the imported merchandise. Section 152.103(d)(1) states that the value of an assist acquired from an unrelated party within the meaning of §402(h)(1)(A)(ii) of the TAA is the cost of its acquisition. Customs has determined the cost of its acquisition is its purchase price plus actual transportation costs. See, HQ 544323 dated March 8, 1990. Additionally, the value of the assists may be apportioned to the imported merchandise pursuant to §152.103(e)(1), Customs Regulations (19 CFR §152.103(e)(1)), which provides that: 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. 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. Therefore, in accordance with 19 CFR §152.103(e)(1), we find the importer’s proposed apportionment of the freight costs, which is calculated by dividing the cost of exporting 50 sets (which are made of U.S. components) to the manufacturer in China, to be acceptable. HOLDING: The importer may apportion the freight costs as requested, i.e., by dividing the cost of exporting 50 sets to the manufacturer in China.  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, this ruling letter should be brought to the attention of CBP. Sincerely, Monika Brenner, Chief Valuation and Special Programs Branch