VAL CO:R:C:V 545170 ILK
District Director
Nogales, Arizona
RE: Application for Further Review of Protest No. 2604-90-
000025; testing equipment as an assist; TAA 402(h)(1)(A)
Dear Sir:
This protest was filed against a Nogales District
appraisement decision in the liquidation of assembled merchandise
imported by Rockwell International (hereinafter referred to as
the "protestant") from its related assembler, Rockwell Collins
(hereinafter referred to as the "assembler"), in Mexico. Our
decision follows a meeting on May 17, 1994 between counsel for
the protestant and members of the Value Branch. We regret the
delay in responding.
FACTS:
The protestant supplied the assembler with test equipment
free of charge. With respect to the testing equipment which is
the subject of this protest, according to the protestant's letter
dated March 9, 1990, the test equipment was provided for the
"sole purpose of checking the integrity and conformance to
specification of the completed assemblies on behalf of the
[protestant]," prior to its importation. In its letter, the
protestant states that the test equipment is not required to be
transferred to the books of the Mexican assembler, and the test
equipment is retained on the protestant's books in the U.S. in
accordance with current accounting practices.
In a subsequent submission dated December 6, 1993, the
protestant provided Customs with a list of all test equipment
provided to the assembler. The list includes final test
equipment and in-process manufacturing test equipment, and
descriptions of the functions of the final test equipment.
According to the protestant's accompanying letter, the final test
equipment is used "to verify the integrity of our products prior
to being imported into the U.S." Only the final test equipment
is the subject of this protest.
According to the concerned import specialist, the
merchandise assembled consists of printed circuit boards (Pcb).
The subject testing equipment reads the Pcb to determine if all
of the components are functioning. According to the import
specialist, the completed assemblies which do not pass the
testing are returned to the assembly line for further processing.
According to the import specialist this occurs frequently.
The imported assembled merchandise was appraised on the
basis of computed value, and the cost of the testing equipment
was included in the computed value of the merchandise as an
assist.
It is the protestant's position that the testing equipment
is not used in the production of the imported merchandise and
therefore the cost of the equipment should not be included in the
computed value of the imported merchandise as an assist.
ISSUE:
Whether the testing equipment constitutes an assist.
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;
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.
In order to determine whether the testing equipment is an
assist, we must find that the equipment is "used in the
production of the imported merchandise." In C.S.D. 89-127
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 TAA 402(h)(1)(A). In C.S.D. 89-127 the testing
equipment was used on the finished instruments and was not used
in the production of the merchandise within the meaning of TAA
402(h)(1)(A)(ii).
In Headquarters Ruling Letter (HRL) 544508 dated June 19,
1990, which was a reconsideration of C.S.D. 89-127, 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 HRL 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 TAA
402(h)(1)(A)(ii).
In this case, the final testing equipment is used for
testing the assembled products. Although the testing is
performed on fully assembled products, the nature of the products
requires such testing, as the integrity of the Pcb cannot
otherwise be determined. The fact that the Pcb's frequently do
not pass testing and are returned to the assembly line for
further processing is evidence that production of merchandise is
not complete until the Pcb's are determined to be functioning.
As a result, we find that the testing equipment is used during
the production process and is essential to the "production of the
imported merchandise."
It 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. Therefore, the
testing equipment is an assist within the meaning of TAA
402(h)(1)(A)(ii) and the cost of the testing equipment is
included in the computed value of the imported merchandise.
Our determination is consistent with the prior decisions of
the Customs Service. Therefore, the provisions of the Customs
Modernization Act which amended 19 U.S.C. 1625 are not
applicable.
HOLDING:
The testing equipment is an assist within the meaning of TAA
402(h)(1)(A) and the cost of the testing equipment is included
in the computed value of the imported merchandise as an assist.
Accordingly, you are directed to deny this petition. In
accordance with Section 3A(11)(b) of Customs Directive 099 3550-
065, dated August 4, 1993, Subject: Revised Protest Directive,
this decision should be mailed by your office to the protestant
no later than 60 days from the date of this letter. Any
reliquidation of the entry in accordance with the decision must
be accomplished prior to mailing of the decision. Sixty days
from the date of the decision the Office of Regulations and
Rulings will take steps to make the decision available to customs
personnel via the Customs Rulings Module in ACS and the public
via the Diskette Subscription Service, Freedom of Information Act
and other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division