Inland Fre igh tand Expor t Pr epar at ion CostsGer ald L. Had leyBeech A ircr a ft Cor porat ionP.O. Box 8 5Wic h ita, Kansas67201-0085

HQ W544204 February 23, 1990 VAL CO:R:C:V W544204 OHS CATEGORY: Valuation RE : Inland Fre igh t and Expor t Pr epar at ion Costs Ger ald L. Had ley Beech A ircr a ft Cor porat ion P.O. Box 8 5 Wic h ita, Kansas 67201-0085 Dear Mr . Hadley: Th is is in response to your le tter s of Apr il 6, 1988, and September 29, 1988, sent to the Chief, National Impor t Spec ialist , Br anch 1, New York Seapor t , and forwarded to us for response. You r equest a ruling regard ing the dut iability of inland fre ight charges and Japanese Customs fees incur red as a result of an agreement entered into between Beech Ai rcr af t Cor p. , Wich i ta, Kansas and Mi tsub ish i A i rcraft International, Nagoya, Japan to purchase tooling. Add itionally , you inqu ir e whether expor t prepar ation costs may be pro-r ated on a percentage basis. FACTS: The in formation prov ided states that the prod uc tion inventory will be transported to the U .S. in 200 for ty foot con tainers over the course of at least one year . The shipments are to include tooling, production inventories and spare parts. The preparation costs for export shipping include nine func tions. The ar eas covered by these costs include the in itial inspec tion conf irmation and initial boxing in the Mi tsubishi shop to the f in al packing of the goods in a rented packing area . You have stated that these costs will be included in the final invoice price. Addi tionally, you ask about the transportation charges from the shop to the packing area and the Japanese Customs fee. No spec i fic information has been provided regarding the Japanese Customs fee. ISSUES : Under the facts presented are the inland freight charges dutiable? Ar e the Customs fees which are included in the invoice price par t of the dutiable value? Can expor t preparation costs be pro-rated on a percentage basis? • - 2 - LAW AND ANALYSIS: As provided in section 152.101, Customs Regulations (19 CFR 152.101), the primary basis of appraisement is transaction value. Transac tion value is defined as the "price actually pa id or payable" for merchandise when sold for expor tat ion to the United States. This is more spec if ically def ined in sec t ion 402(b) (4)(A) of the Tr ad e Agreements Act of 1979, (TAA: 19 U .S .C. 140la(B) (4) (A) , as the follow ing: The term "pr ice actually paid or payable" means the total payment (whether d irect or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.(emphasis added) It is clear freight costs involved in the international movement of merchandise from the country of exportation to the country of importation are to be excluded from the tr ansaction value of imported merchandise. The expenses related to foreign inland freight charges, however, are not covered by this provision. Foreign inland freight charges are provided for in Section (a)(5), Customs Regulations (19 CFR 152.103 (a) (5)). This section provides, in par t: Foreign inland freight and other inland charges incident to the international shipment of merchandise. Ex-factory sales. If the price actually paid or payable by the buyer to the seller for the imported merchandise does not include a charge for foreign inland freight and other charges for services incident to the international shipment of merchandise (an ex­ factory price) , those charges will not be added to the price. Sales other than ex-factory. As a general rule, in those situations where the price actually paid or payable for imported merchandise includes a charge for foreign inland freight, whether or not itemized separately on the invoices or other commercial documents , that charge will be par t of the transact ion value to the extent included in the price. However, charges for foreign inland freight and other services incident to the shipment of the merchandise to the United States may be considered incident to the international shipment of that merchandise within the meaning of section 152 .102 (f) if they are identif ied separately and they occur after the merchandise has been sold for expor t to the United States and placed with a carr ier for through shipment to the Uni ted States. (iii) Evidence of sale for expor t and placement for through shipment. A sale for export and placement for through shipment to the United States under paragr aph (a)(5) (ii) of this section shall be established by means of a through bill of lading to be presented to the district director. Only in those situations where it clearly would be impossible to ship merchandise on a through bill of lading ( , shipments via the seller 's own conveyance) will other documentation satisfactory to the d istr ict d irector showing a sale for expor t to the United States and placement for throug h shipment to the United States be accepted in lieu of a through bill of lading… The logic of requir ing the documentation described in section 152.103 (a) (5) was explained in T.D . 84-235, in which it was stated: ....To avoid any confusion , it has been determined that in order for foreign inland freight to be deemed incident to the international shipment of merchand ise , instead of requiring that freight costs occur subsequent to the placing of impor ted merchandise on the exporting carrier , the freight costs and other services incident to the shipment of the merchandise must occur after the goods have been sold for expor t to the Uni ted States and are placed wi th a car r ier for throug h sh ipmen t to the United States . This will cover shipment by more than one mode of transpor tation , by multiple freigh t compan ies, or throug h reload center s, as long as the merchandise has been sold for expor t to the Un ited States and placed with a carr ier for through shipment to the Un ited States, as evidenced by the presentation to customs of a throug h bill of lad ing. The through b ill of lading is necessary to permi t Customs off icers to ver ify objec tively that the above cond itions have been satisf ied. Since the facts you have prov ided ind icate that the invoice includes the inland freight charges, it appear s that an ex­ factory sale has not occur red. Therefore, in order to find the charges incur red for tr anspor ting the merchandise from the shop to the packing area non-d utiable, the requirements of section 152.103(a) (5) (ii) and (ii i) must be met. Based upon the ev idence submitted, we are unable to conclude that these requirements have been satisf ied. The other cost inquired about is the Japanese Customs Fee. In th is regar d, since the fee has been included in the invoice amoun t ther e is no authority in section 402(b) of the TAA to remove it. Finally , the information prov ided in your letter is insuf fic ient for us to make a deter mination regard ing the pro­ r ation of the costs incur red in the prepar ation of the merchand ise for expor t. Gener ally speak ing, we will be willing to accept any cost allocation prepared in accord ance with gener ally accepted accounting pr inciples. HOLDING: Based upon the foregoing , the tr anspor tation charges incurred for transpor ting the merchand ise from the shop to the pack ing area do not mee t the requirements of section 152.103 (a)(5) (i i) and (ii i). Therefor e, these inland freight charges are du tiable. Since the Customs fee is included in the invoice pr ice, the fee would be dutiable as par t of the tr ansaction value.  Additionally, we are unable to mak e a deter mination as to the pror ation of the preparation for expor t costs at th is time . If however, you wish to prov ide add itional information with respect to th is issue we will be happy to consider it at that time . Sincerely, John Duran t, Director Commercial Rulings Div ision