CBP Ruling W547611

HQ W547611 March 22, 2001 RR: IT: VA W547611 LOR CATEGORY: VALUATION Mr. John Imbrogulio Import Specialist Nordstrom Product Group 1617 Sixth Avenue, Suite 1000 Seattle, Washington 98101 Dear Mr. Imbrogulio: This is in regard to your ruling request dated December 23, 1999, concerning the valuation of certain assists that are declared as waste or fabric loss in a first shipment and subsequently declared as “2nd quality merchandise” in future shipments. This request builds upon Headquarters Ruling Letter (HRL) 545910, dated November 30, 1995, which modified HRL 544758, dated February 21, 1992 (inclusion of defective materials and scrap or waste as assists). Your initial submission, the Supplemental Information Letter Nordstrom submitted to Customs, the Addison Ltd. Fabric Scale, the Eastern Garment Invoices, and Customs Form 7501 were used in formulating this decision. We regret the delay in responding. FACTS: Nordstrom supplies fabric to cut, make, and trim garment manufacturers. The manufacturers cut and assemble the fabric into finished garments, some of which are unsuitable for importation (“2nd quality merchandise”). The garments that are suitable for importation are considered “1st quality merchandise.” Nordstrom imports the 1st quality merchandise and the manufacturers rework the “2nd quality merchandise.” Nordstrom subsequently imports the 2nd quality merchandise into the United States. You state that on the shipment of the 1st quality merchandise, Nordstrom declares the cost of the CMT work, the cost of the fabric on the 1st quality merchandise as well as the cost of the fabric used to produce the 2nd quality merchandise. You then explain that some of the 2nd quality merchandise may be deemed acceptable and imported, but this determination may not be made until after the 1st quality merchandise has been imported.  As a result, the fabric used in the 2nd quality merchandise has already been declared as part of the assist declared on the entry of the 1st quality merchandise and duty paid on the fabric. Therefore, you have suggested that the cost of the fabric associated with the second importation has already been declared as a dutiable assist on the first entry. ISSUE: Whether the importer may apportion the full value of a fabric assist on the first entry of 1st quality merchandise. LAW & 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 of the TAA). The preferred method of appraisement is transaction value, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus certain enumerated additions, including the value, apportioned as appropriate, of any assists. 19 U.S.C. §1401a(b)(1 )(A). The term “assists” includes materials, components, parts and similar items incorporated in imported merchandise, and supplied by the buyer used in connection with the production or sale for export to the U.S. of the merchandise. 19 U.S.C. §1401a(h)(1). In this case, it is undisputed that the total amount of fabric constitutes an assist and so, we consider only whether it is appropriate to apportion the value of the assist over the first shipment. The TAA, Statement of Administrative Action (SAA), and §152.103(d)(1), customs Regulations (19 C.F.R. §152.103(d)(1)), set forth the manner in which assists are to be valued. §152.103(d)( 1) states: If the assist consists 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. The SAA and §152.103(e)(1), Customs Regulations (19 C.F.R. §152.103(e)(1)), provide the manner in which the value of an assist is to be apportioned to the imported merchandise. §152.103(e)(1) states: [T]he 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. [T]he 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. Customs has considered the apportionment of assists in HRL 546771, dated March 27, 1998 and HRL 543261, dated July 14, 1981. HRL 546771 involved two issues. The first involved the appropriate method for apportioning mold costs for mini-crystal vases. The second considered the appropriate method for apportioning costs associated with printing tools and die cast tools. Customs determined that the mold payment should not be apportioned to a single shipment in that case because there was no evidence of the parties intention to apportion the merchandise to a single shipment. Customs also determined, however, that the costs for tools satisfied the statutory definition of an assist within section 1401a(h)(1)(A) because the importer supplied them directly and free of charge for use in connection with the production of the vases. As assists, the tools would be subject to a manner of apportionment specified in 19 C.F.R. §152.103(e). The importer chose to apportion the value of the assist over the first shipment pursuant to section 152.103(e)(1)(i). In HRL 542361 Customs determined that where the entire anticipated production using an assist is for exportation to the United States, the total value of the assist may be apportioned over the first dutiable shipment if the importer wishes to pay duty on the entire value at one time. The assist would not be added to the price actually paid or payable to form part of the transaction value of future shipments of articles produced from the assist. See HRL 542361. Under the scenario you have presented, the fabric is an assist, the value of which should be added to the price actually paid or payable for the imported garments. The method of apportionment actually accepted by Customs will depend upon the documentation submitted by the importer. 19 C.F.R. §152.103(e)(1). Based on your explanation of the facts and the documentation enclosed with your request, the method of apportioning the assists to the first entry appears to be reasonable. Thus, Nordstrom’s method of apportionment is acceptable. HOLDING: The subject fabric is an assist within the meaning of 19 U.S.C. §1401a(h)(1)(A). The value of the fabric must be added to the price actually paid or payable for the imported merchandise pursuant to section 1401a(b)(1)(C). Under the facts presented, the value of the fabric may be apportioned over the first shipment of the 1st quality merchandise pursuant to 19 C.F.R. §152.103(e). Sincerely, Virginia L. Brown Chief, Value Branch