VAL RR:IT:VA 545753 CRS
Edmund Maciorowski, Esq.
1577 North Woodward
Suite 207
Bloomfield Hills, MI 48304
RE: Transaction value; related parties; sale for exportation; assists; HRL 543439; testing costs
Dear Mr. Maciorowski:
This is in reply to your letter, dated August 17, 1994, on behalf of ***************** (the importer), in which you requested a ruling concerning the appraisement of an imported automotive welding and transfer line. This matter was discussed with members of my staff at a meeting held at Customs on December 20, 1994, and an additional submission was filed on April 7, 1995. We regret the delay in responding.
FACTS:
The importer has contracted with U.S. Company to design and build a welding and transfer line system (the "transfer line") for use in the manufacture of motor vans. The transfer line consists of four parts, or zones. Zone A is comprised of the left and right birdcages; zone B consists of the motor component module; zone C encompasses the roof, pan and quarter panel modules; and zone D incorporates the unit for the assembly of doors, fenders and hoods.
While the importer is responsible for designing and building the transfer line, the individual components thereof will be acquired from a number of sources. To this end, the importer has subcontracted with its parent corporation, ***************************** Gmbh, to assemble zone A of the transfer line. In connection with the subcontract, you state that certain components, including controllers, transformers, welding guns, clamps, cables, electrical equipment, installation materials and pneumatic cylinders, will be procured by the importer and shipped from the U.S. to Gmbh’s plant in country X. Gmbh will combine these parts with foreign-sourced parts to assemble zone A of the transfer line. Copies of the relevant contracts, viz., the U.S. Company - importer contract and the importer - Gmbh contract, were not submitted with your ruling request, nor were they provided in response to a specific request therefor from a member of my staff.
In addition to the foreign-sourced parts and the parts shipped to country X from the importer, zone A will incorporate approximately eight-seven heavy industrial robots purchased by U.S. Company from Foreign Company, a country Y company. The robots will be shipped from country Y to Gmbh where they will be tested and incorporated into zone A. While Gmbh will perform the testing, you have not indicated how the company will be compensated for this work. After testing is completed, zone A will be dismantled and shipped to U.S. Company in the U.S. The importer will act as the importer of record.
ISSUE:
The issues presented are: whether the imported merchandise should be appraised under the transaction value method; whether there was a sale for exportation between U.S. Company and Foreign Company; whether robots incorporated in the imported merchandise constitute an assist whose value is included in the appraised value of the merchandise; and whether costs incurred in testing the robots are included in the appraised 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 is transaction value, which is defined as the "price actually paid or payable for the merchandise when sold for exportation to the United States," plus five statutory additions to the price actually paid or payable. 19 U.S.C. § 1401a(b)(1). However, transaction value is an acceptable basis of appraisement only if, inter alia, the buyer and seller are not related, or if related, the relationship did not influence the price actually paid or payable, or the transaction value of the merchandise closely approximates certain "test values," e.g., the deductive or computed value of identical or similar merchandise. 19 U.S.C. § 1401a(b)(2)(B). The test values must have been determined pursuant to actual appraisements of imported merchandise. Headquarters Ruling Letter (HRL) 543568 dated May 30, 1986. See also 19 C.F.R. § 152.103(l) in regard to establishing the acceptability of transaction value.
The importer is a subsidiary of Gmbh, thus the parties are related within the meaning of section 402(g)(1) of the TAA. In a recent decision, Headquarters Ruling Letter (HRL) 545506, dated November 30, 1995, this office examined the dealings between the importer and Gmbh. Since no evidence was presented to substantiate that Gmbh’s price was settled in a manner consistent with industry pricing practices, that the price was adequate to ensure recovery of all costs plus a profit equal to the firm’s overall profit realized in a representative period of time in sales of merchandise of the same class or kind, or that the price closely approximated a test value, we determined, in that instance, that transaction value was not an appropriate basis of appraisement.
Similarly, in the instant case no information has been presented to support the use of transaction value. If transaction value is unacceptable, the imported merchandise should be appraised in accordance with one of the alternative methods of appraisement, applied sequentially. The alternative bases of appraisement are: the transaction value of identical merchandise; the transaction value of similar merchandise; deductive value; computed value; and the "fallback method" provided for under section 402(f) of the TAA. 19 U.S.C. § 1401a(a)(1)(A)-(F). However, assuming that transaction value is acceptable, the following constitutes our position in regard to the issues raised by your ruling request.
You contend that sale of the robots by Foreign Company to U.S. Company constitutes a sale for exportation to the United States in accordance with section 402(b)(1) of the TAA and that the robots should be appraised on the basis of transaction value. In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992), the court stated that for purposes of section 402 of the TAA, merchandise is sold for exportation to the United States when the goods are clearly destined for export to the United States and when the manufacturer and the middleman deal with each other at arm's length, in the absence of any non-market influences that affect the legitimacy of the sales price. Id. at 509. See also, Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18 (1993). In the instant case, the robots are not clearly destined for the U.S. when sold by Foreign Company to U.S. Company. Instead, the robots are shipped to Gmbh free of charge for testing and for incorporation into zone A of the transfer line. After testing the robots, Gmbh combines them with other components supplied by the importer, e.g., transformers, cables and electrical equipment, in order to build zone A of the transfer line. It is this article, of which the robots are a component, that is sold for exportation to the United States pursuant to the subcontract between the importer and Gmbh.
Assuming that the imported merchandise, i.e., zone A of the transfer line, is appraised under the transaction value method, the value of the robots is included in the appraised value as an "assist." The term "assist" refers to an item that is supplied directly or indirectly, and free of charge or at a reduced cost, by the buyer for use in connection with the production or sale for export of the imported merchandise. It includes, inter alia, "materials, components, parts and similar items incorporated in the imported merchandise." 19 U.S.C. § 1401a(h)(1)(A)(i). In HRL 543439, dated May 6, 1985, palladium, a material used in the production of an imported chemical product, was provided free of charge to the foreign manufacturer/seller by the ultimate U.S. consignee rather than by the importer/buyer. The importer/buyer maintained that the material was not an assist and that its value should not have been included in the appraised value of the imported merchandise because it was not supplied by the buyer. Nevertheless, we determined that the palladium was an assist and that its value was therefore properly included in the appraised value of the imported merchandise since to disregard the value of the palladium would have rendered the phrase "supplied directly or indirectly" meaningless.
Similarly, it is our position that the robots are supplied directly or indirectly by the importer and that their value is included in the appraised value of the imported merchandise, i.e., zone A of the transfer line. The value of the assist is its cost of acquisition to U.S. Company, plus the cost of transporting it to the place of production, i.e., Gmbh’s country X plant. 19 C.F.R. § 152.103(d).
The importer also directly supplies the seller, Gmbh, with components, e.g., transformers, cables and electrical equipment, used to build zone A of the transfer line. These items also constitute assists under section 402(h)(1)(A)(i) of the TAA. Accordingly, assuming transaction value is acceptable, the value of these items is also included in the appraised value of the imported merchandise as an addition to the price actually paid or payable in accordance with section 402(b)(1)(C) of the TAA.
You also contend that costs incurred in testing the robots in country X are not part of the price actually paid or payable for the imported merchandise. The term "price actually paid or payable" refers to the "total payment (whether direct or indirect...) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller." 19 U.S.C. § 1401a(b)(4)(A). In Generra Sportswear Company v. United States, 905 F.2d 377, 380 (Ct. Int'l Trade 1990), the court stated that so long as a payment is made "to the seller in exchange for merchandise sold for export to the United States, the payment properly may be included in transaction value, even if the payment represents something other than the per se value of the goods." In the instant case, if the cost of testing were included in the price of the imported merchandise, e.g., in the contract price of the imported merchandise, there would be no authority to deduct such an amount from transaction value even if the amount were invoiced separately. HRL 544035 dated November 23, 1987. Alternatively, if the importer were billed separately for the cost of testing, the amount of the payment would represent part of the total payment made by the buyer to, or for the benefit of, the seller, in accordance with the court’s decision in Generra. Thus, assuming transaction value is the appropriate basis of appraisement, the testing costs are included in transaction value as part of the price actually paid or payable.
HOLDING:
If the relationship between the importer and Gmbh did not influence the price actually paid or payable, the imported merchandise is to be appraised on the basis of transaction value. If transaction value is unacceptable, the imported merchandise is to be appraised in accordance with one of the alternative methods provided for in sections 402(c)-(f) of the TAA.
Assuming transaction value is the appropriate basis of appraisement, the robots and components supplied to Gmbh for use in connection with the production of the imported transfer line constitute assists within the meaning of section 402(b)(1)(B) of the TAA. The value of the assists must be included in transaction value as an addition to the price actually paid or payable. Costs incurred in country X for testing the robots are part of the price actually paid or payable.
Sincerely,
Acting Director
International Trade Compliance Division