VAL CO:R:C:V 545256 CRS
District Director
U.S. Customs Service
55 Erieview Plaza
Plaza Nine Bldg., 6th Floor
Cleveland, OH 44114
RE: Internal Advice Request 14/93; assists; design and development; tools, dies, and molds;
HRL 542324
Dear Sir:
This is in reply to your memorandum, dated February 4, 1993, transmitted through the
Customs Information Exchange, New York, under cover of which you forwarded the above-referenced request for internal advice (IA), submitted by Ross & Hardies on behalf of UPS
Customhouse Brokerage (UPS Brokerage). A meeting with counsel was held on May 10, 1994,
subsequent to which counsel filed an additional submission dated June 14, 1994. We regret the
delay in responding.
FACTS:
United Parcel Service (UPS) developed certain software at its U.S. research facility. The
software was subsequently copied onto a master set of erasable programmable read-only memory
chips (EPROMs). The master EPROMs were in turn supplied free of charge to a Japanese
manufacturer for use in the production of the imported merchandise, viz., Delivery Information
Acquisition Devices (DIADs).
The imported DIADs are produced in the following manner. First, the master EPROMs
are inserted into a machine known as a PROM burner which extracts software contained in the
master EPROMs and stores it in a PROM. The software stored in the PROM is then copied onto
blank, production EPROMs. You contend that the function of the PROM burner is merely to
store the software extracted from the master EPROMs on a PROM, thereby allowing for repetitive
copying of the software onto production EPROMS. Consequently, you liken the master EPROMs
to tools, dies or molds and, on this basis, contend that they constitute an assist.
In contrast, counsel maintains the master EPROMS represent engineering, development
and design work undertaken in the U.S. and, therefore, do not constitute an assist. Counsel states
that master EPROMs serve merely as a transfer medium and notes that the software stored in the
master EPROMs contained no instructions on how to create or program the production EPROMs
that are installed on the imported DIADs. Instead, the design instructions, or software, contained
on the master EPROMs were simply copied onto blank, production EPROMs by the
manufacturer's equipment.
ISSUE:
The issue presented is whether the master EPROMs, supplied free of charge by the buyer
to the seller for use in the production of imported DIADs, constitute an assist whose value should
be included in the transaction value of the imported merchandise.
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 (TAA; 19 U.S.C.
1401a). The preferred method of appraisement under the TAA is transaction value, defined
as "the price actually paid or payable for the merchandise when sold for exportation to the United
States," plus the value, apportioned as appropriate, of any assist. 19 U.S.C. 1401a(b)(1). For
the purposes of this ruling we have assumed that transaction value is the appropriate basis of
appraisement.
The term "assist" is defined by section 402(h)(1)(A) of the TAA as that which is "supplied
directly or indirectly, and free of charge or at a reduced cost, by the buyer of imported
merchandise for use in connection with the production or sale for export to the United States" of
imported merchandise. Assists include: tools, dies, molds and similar items used in the
production of the imported merchandise; and engineering, development, artwork, design work,
and plans and sketches, undertaken elsewhere than in the U.S., that are necessary for the
production of the imported merchandise. 19 U.S.C. 1401a(h)(1)(A). In the instant case the
buyer supplied the seller, free of charge, with master EPROMs designed and manufactured in the
U.S. The software contained in the master EPROMs was transferred to production EPROMs.
The production EPROMS were then installed on the imported DIADs.
In Headquarters Ruling Letter (HRL) 542324, dated June 22, 1981 (TAA No. 33), the
question presented was whether a U.S. pattern generator tape, provided free of charge to a foreign
manufacturer by the importer, and used to fabricate photomasks, was an assist within the meaning
of section 402(h). The tape contained specifications used to control a pattern generator machine
in the printing of integrated circuits onto blank photomasks. Since the tape was found essentially
to be a drawing in digital state we held that it was U.S. design work and, therefore, did not
constitute an assist. See also, HRL 542446, dated July 23, 1981 (TAA No. 37). On the other
hand, items supplied free of charge by the buyer which confer final shape and form to the
imported merchandise have been found to be similar to tools, dies or molds. Accordingly, these
items, for example, photomasks, constituted assists. E.g., HRL 544147, dated July 5, 1988; HRL
544040, dated November 8, 1988.
According to the technical description of the master EPROMs submitted by the buyer, and
reviewed by the Office of Laboratories and Scientific Services (OLSS), the EPROMs are a means
for the buyer to transfer design information to the manufacturer of the imported merchandise. The
design information, or software, could have been transferred using other types of media, e.g.,
disk, or hardcopy dump and re-key in the country of production. Alternatively, the software
could have been transferred by modem or hard circuit. While the use of EPROMs is an efficient
and cost-effective method of transferring the U.S. software, given the variety of alternatives
available, the actual method of transfer appears to be immaterial. For Customs' purposes,
however, what is important is that the buyer supplies U.S. software, free of charge, for use in the
production or sale of the imported DIADs to the U.S.
Consequently, based on the review, by the OLSS, of the information submitted, it is our
position that the master EPROMs are simply an electronic means of transferring design work. As
such, the master EPROMs are similar to the pattern generator tapes of HRL 542324. The
information on the master EPROMs was developed in the U.S. and, moreover, was necessary for
the production of the imported DIADs. The masters do not confer final shape and form to the
imported merchandise and, consequently, are not similar to tools, dies or molds.
HOLDING:
The master EPROMs are not assists within the meaning of section 402(h)(1)(A) of the
TAA because they represent engineering and design work undertaken in the U.S. Their value
should not be included in the transaction value of the imported DIADs.
This decision should be mailed by your office to the internal advice requester no later than
sixty days from the date of this letter. On that date the Office of Regulations and Rulings will
take steps to make the decision available to Customs personnel via the Customs Ruling Module
in ACS, and to the public via the Diskette Subscription Service, the Freedom of Information Act
and other public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division