VAL RR:IT:VA 545917 LPF
Port Director
U.S. Customs Service
New York Seaport
6 World Trade Center
New York, NY 10048
RE: Reconsi deration of HRL 544662; Internal Advice Request 62/91; Redipacking, van stuffing, and palletizing of children's wearing apparel; 19 U.S.C. 1401a(b)(4), price actually paid or payable; Charges incurred for international shipment; Generra; Chrysler
Dear Director:
This decision concerns a request made by Sharretts, Paley, Carter
& Blauvelt, P.C. on behalf of their client, Baby Togs, Inc., for
reconsideration of the portion of Headquarters Ruling Letter (HRL)
544662, issued March 18, 1994 as internal advice 62/91, concerning the
dutiability of packing/processing costs. In this decision it was
determined, based on the evidence submitted, that the costs incurred
by the buyer for redipacking, van stuffing, and palletizing the
imported merchandise were to be included as part of the transaction
value of the merchandise, as packing costs incurred by the buyer with
respect to the imported merchandise pursuant to section 402(b)(1)(A)
of the Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (TAA), codified at 19 U.S.C. 1401a. Since the issuance of this
decision, counsel has submitted additional information, including
videotapes of the packing process in the Philippines and your office
has had the opportunity to witness, firsthand in the U.S., the
redipack process and unloading of sealed, ocean containers consisting
of the merchandise. We have reviewed HRL 544662 in light of the newly
submitted information and the proper appraisement is as follows. We
regret the delay in responding.
FACTS:
Novelty Philippines, Inc. (NPI) is a wholly owned subsidiary of
Baby Togs, Inc. for whom it provides redipacking, van stuffing, and
palletizing services. Redipacking in essence is a packing procedure
whereby goods which previously were bulkpacked then are segregated and
physically removed to a separate, nearby processing area. At this
point, the sealed and strapped cartons are opened and unpacked and the
garments are pressed, placed on hangers, wrapped with tissue paper,
placed in polybags, and repacked for retail sale in boxes containing
either six or twelve garments.
Since the issuance of HRL 544662, we met with Baby Togs and
counsel (on December 5, 1995) and have reviewed additional submissions
from counsel, including a video tape of the operation. Furthermore,
the cognizant National Import Specialist (NIS) has visited the Baby
Togs facility in New Jersey and surveyed the actual redipack process
also performed there. The NIS witnessed the complete loading and
unloading of sealed ocean containers, noting that the containers
consisted of both bulkpacked and redipacked cartons. According to the
NIS, these bulkpacked cartons appeared identical to those appearing in
the NPI video. Furthermore, it is our understanding that the U.S.
redipack operation, which likewise is performed on bulkpacked carton
goods, is the same as that in the Philippines.
Counsel explains that although approximately 80 to 90 percent of
the total imported merchandise is redipacked, all merchandise
initially is bulkpacked since it is not known until that point which
merchandise must be redipacked. It was explained that redipacking a
substantial quantity of the merchandise in the Philippines as opposed
to the U.S. alleviates some of the congestion, pressure, and expenses
which could result from conducting such operations at the U.S.
facility.
Regardless as to whether the goods ultimately are shipped
bulkpacked or redipacked to the U.S., the merchandise is priced in
bulkpacked condition and invoiced at that price. In this regard,
counsel has submitted entry summaries (Customs Forms 7501), invoices,
and proofs of payments demonstrating that Baby Togs reimburses NPI for
the latter's actual redipack expenses on a periodic basis, unrelated
to shipments and/or quantities shipped. Additionally, counsel
submitted NPI's Statement of Income and Expenses revealing that NPI's
"income from shipments" does not include separately categorized
redipack costs. Redipack charge lists were made available showing
that the redipack costs reflect actual labor costs plus a percentage
for fringe benefits, overhead, and profits. Moreover, counsel submits
that Baby Togs takes title to the goods in their bulkpacked condition.
The merchandise is sold by NPI to Baby Togs ex-factory, the latter
being responsible for all freight and related costs from the NPI
factory to the U.S. Thus, counsel submits that the redipack costs,
other than the packaging materials, are not part of the price actually
paid or payable as invoiced and paid.
Van stuffing and palletizing is the operation of placing and
arranging the packed cartons into containers. These operations also
are performed by NPI personnel at the Philippine facility.
Apparently, NPI installs the cartons in the shipping containers in
order to minimize wasted container space and freight charges. By
packing cartons on pallets, it appears that NPI decreases the time
spent loading the goods and handling the containers. Packed cartons
are computer bar coded to reveal each carton's contents prior to
container on-loading. This evidently enhances inventory control and
facilitates the proper distribution of merchandise at the New Jersey
facility when it is off-loaded. Additionally, packing and sealing
containers at NPI premises apparently decreases the likelihood that
container contents will be pilfered while they are in transit to the
U.S.
Counsel acknowledges that their initial submissions regarding
NPI's packing operations were not supported by a substantial amount of
documentation. However, counsel asserts that the newly submitted
evidence establishes that these costs do not comprise part of the
transaction value for the imported merchandise. First, counsel
submits that these amounts are not dutiable as part of the price
actually paid or payable in accordance with the decisions of Generra
Sportswear Co. v. United States, 8 CAFC 132, 905 F.2d 377 (1990) and
Chrysler Corporation v. United States, 17 CIT 1049 (1993). Moreover,
counsel contends that in the event Customs were to conclude that such
costs were part of the price actually paid or payable, they
nevertheless would be deducted from the price as "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 U.S."
402(b)(4)(A) of the TAA. In this regard, counsel has proffered
documentation indicating that NPI's van stuffing and palletizing
operations are identical to services normally performed by independent
cargo consolidators and shipping companies. Finally, insofar as the
subject merchandise is packed ready for shipment in seaworthy
containers prior to being redipacked, counsel provides that the
amounts at issue do not constitute packing costs to be added to the
price actually paid or payable pursuant to 402(b)(1)(A) of the TAA.
ISSUE:
Based on the evidence submitted whether the redipacking, van
stuffing, and palletizing operations incurred by the buyer are to be
included within the transaction value of the imported merchandise.
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the
United States is transaction value pursuant to section 402(b) of the
TAA. Section 402(b)(1) of the TAA provides, in pertinent part, that
the transaction value of imported merchandise is the "price actually
paid or payable for the merchandise when sold for exportation to the
United States" plus amounts for the enumerated statutory additions,
including the packing costs incurred by the buyer with respect to the
imported merchandise. 402(b)(1)(A) of the TAA.
The "price actually paid or payable" is defined in section
402(b)(4)(A) of the TAA as the "total payment (whether direct 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...) made, or to be made, for
the imported merchandise by the buyer to, or for the benefit of, the
seller."
Price actually paid or payable
Two recent court cases have addressed the meaning of the term
"price actually paid or payable." In Generra, supra, the Court of
Appeals for the Federal Circuit considered whether quota charges paid
to the seller on behalf of the buyer were part of the price actually
paid or payable for the imported goods. In reversing the decision of
the lower court, the appellate court held that the term "total
payment" is all-inclusive and that "as long as the quota payment was
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." The court also explained that it did not intend
that Customs engage in extensive fact-finding to determine whether
separate charges, all resulting in payments to the seller in
connection with the purchase of imported merchandise, were for the
merchandise or something else.
In Chrysler, supra, the Court of International Trade applied the
Generra standard and determined that although tooling expenses
incurred for the production of the merchandise were part of the price
actually paid or payable for the imported merchandise, certain
shortfall and special application fees which the buyer paid to the
seller were not a component of the price actually paid or payable.
With regard to the latter fees, the court found that the evidence
established that the fees were independent and unrelated costs
assessed because the buyer failed to purchase other products from the
seller and not a component of the price of the imported engines.
Accordingly, it has been our position that based on Generra,
there is a presumption that all payments made by a buyer to a seller
are part of the price actually paid or payable for the imported
merchandise. However, this presumption may be rebutted by evidence
which clearly establishes that the payments, like those in Chrysler,
are completely unrelated to the imported merchandise.
Specifically, counsel provides that in accordance with Generra,
the redipacking costs should not be subject to duty since: 1) sections
402(b)(1)(A) and 402(h) of the TAA precisely address the dutiability
of packing costs; 2) enactment of the TAA did not change Customs'
policy that duty should not be assessed on packing costs incurred
after merchandise already has been packed ready for shipment; 3) the
redipacking charges are not invoice specific; 4) assessing duty on
redipacking charges would require Customs to engage in extensive fact
finding to determine the amount of duty applicable to each shipment;
and 5) redipacking is not a prerequisite to exportation since the
goods can be and are exported to the U.S. without being redipacked.
Furthermore, like the fees at issue in Chrysler, counsel provides that
the redipacking charges are independent, unrelated costs, in this
case, assessed after the goods have been bulkpacked in seaworthy
containers. Counsel adds that Baby Togs treats the charges separately
from the cost of the merchandise in its accounting records, distinct
and apart from payment for the goods.
In accord with numerous Customs decisions addressing the Generra
and Chrysler cases, we must disagree. The TAA precisely addresses the
dutiability of packing costs as additions to the price actually paid
or payable when not otherwise included in the price. However, based
on the facts presented, we find the amounts at issue to be part of the
price actually paid or payable, that is, part of the total payment.
In this regard, Customs has determined that payments from the buyer to
or for the benefit of the seller, regardless as to whether they could
have constituted assists, royalties, or proceeds as set forth in
402(b)(1) and (h), can be dutiable as part of the total payment. See
HRLs 545770, issued June 21, 1995; 545380, issued March 30, 1995;
544800, issued May 17, 1994; and 544867, issued December 15, 1993.
This is fully consistent with the language set forth in the TAA.
Authority to include the redipacking amounts as part of the price
actually paid or payable is derived from numerous Customs decisions
where varied payments, for services which may have appeared incidental
in nature, were found to be part of the total payment for the goods.
For instance, in HRL 545490, issued August 31, 1994, it was determined
that payments for "finishing" services in connection with apparel such
as labeling, pressing, acid and stone washing, bleaching, softening,
and quality control would be part of the total payment, insofar as
such payments were made from the buyer to or for the benefit of the
seller. Likewise, Customs has found the following types of payments
to be part of the total payment for the imported merchandise:
operating expenses such as labor, overhead, and administrative costs
(HRL 545456, issued October 21, 1994); direct and pass-through/reimbursement payments to a shelter/assembly operation (1.)
(HRL 544764, issued January 6, 1994); currency exchange hedging costs
(HRL 544971, issued October 20, 1993); and warehousing and insurance
charges (HRLs 544758, issued February 21, 1992; 543569, issued July
16, 1985; and 542984, issued April 8, 1983).
For these reasons, we do not find the subject fees to constitute
independent, unrelated costs as was the case in Chrysler. In other
words, the fact that the redipacking operations occur after the goods
have been bulkpacked in seaworthy containers does not mandate a
finding that the fees are not made in connection with the purchase of
the imported merchandise. (2.) Simply stated, we find such operations
(i.e., the pressing, hanging, wrapping, bagging, and repacking of
certain quantities for retail sale) to represent more than just
packing for purposes of shipment, but rather retail packing
specifically requested and required by the buyers for purposes of
selling the goods and, hence, to pertain to the merchandise. The
videos illustrating the redipacking process strongly support this
conclusion.
It is our position that this remains the case, regardless of
counsel's additional arguments. First, the fact that such payments
are made periodically, and not for individual shipments, and that the
charges are accounted for separately from the cost of the merchandise
does not demonstrate that the amounts are not made in connection with
the purchase of the imported merchandise. See Chrysler, supra; HRL
544694, issued February 14, 1995; HRL 545456, issued October 21, 1994;
and HRL 542975, issued March 9, 1983. Additionally, we recognize that
the Generra court's reluctance to require Customs to engage in
extensive fact finding pertained to whether separate payments to the
seller were for the merchandise or something other than merchandise,
as opposed to the calculation of the amount of duty actually owed on
each shipment, as provided by counsel. Furthermore, as demonstrated
in the above analysis, Customs never has adopted the general "policy,"
articulated by counsel, to wit, that duty should be assessed on
packing costs incurred after merchandise already has been packed ready
for shipment. (3.) Finally, in accord with Generra, we reiterate
that, "as long as the . . . payment was made to the seller in exchange
for merchandise sold for export to the United States" such amounts are
part of the total payment for the imported merchandise regardless as
to when they were incurred and whether they were a "prerequisite" or
"condition precedent" to exportation of the merchandise. (4.)
Exclusion for international shipment
Moreover, we do not find the redipacking fees to constitute costs,
charges, or expenses incurred for transportation, insurance, and
related services incident to the international shipment of the
merchandise which would be excluded from the price actually paid or
payable in accordance with 402(b)(4)(A). In general, Customs has not
considered charges incurred before merchandise has left the country of
exportation to constitute such international freight charges. See HRL
543501, issued May 2, 1985, where charges for storage and insurance
paid to the seller before the international shipment commenced (and in
the case of the latter, before exportation) were not found to
constitute costs for international shipment. Likewise, Customs does
not find such amounts to represent foreign inland "freight" charges,
but charges pertaining to the goods themselves.
However, Customs has recognized that loading merchandise onto a
vessel destined for the U.S. does constitute services incident to
international shipment. See HRL 543518, issued September 3, 1985.
Hence, in the event Customs was to find the fees relating to the van
stuffing and palletizing as part of the total payment and, thus, part
of the price actually paid or payable for the merchandise they would
be excluded from the price as costs pertaining to international
shipment. We note that while counsel has proffered evidence
indicating that the van stuffing and palletizing services are
identical to services normally performed by independent cargo
consolidators and shipping companies no similar evidence has been
presented regarding the redipacking operations.
Addition to the price as packing costs
Counsel cites numerous decisions wherein Customs has stated that
only packing costs necessary to place goods in seaworthy condition
packed ready for shipment to the U.S., as opposed to costs incurred
for repacking merchandise after it has been packed in such condition,
are included in the transaction value of the imported merchandise as
an addition to the price actually paid or payable.
In this context, we feel it unnecessary to address the dutiability
of the redipacking charges since it is our position that such amounts
already are included in the transaction value as part of the price
actually paid or payable for the merchandise. However, we do
acknowledge that the van stuffing and palletizing fees would not form
part of the transaction value, alternatively, as packing costs to be
added to the price. In our opinion, they are incurred after the goods
have been packed ready for shipment to the U.S. This comports with
the definition of packing costs as, "the cost of all containers and
coverings of whatever nature and of packing, whether for labor or
materials, used in placing merchandise in condition, packed ready for
shipment to the United States." 402(h)(3) of the TAA.
HOLDING:
Based on the additional information submitted, we find that the
redipacking operations are included within the transaction value as
part of the price actually paid or payable, while the van stuffing and
palletizing operations are not included within the transaction value
because they do not constitute part of the price, as services incident
to international shipment, nor an addition to that price as packing
costs.
Because it was appropriate to appraise the merchandise based on
the information available at that time, as determined in HRL 544662,
and the decision herein is based on additional information which was
not previously available for Customs' consideration, modification or
revocation of that decision, pursuant to section 625, Tariff Act of
1930 (19 U.S.C. 1625), as amended by section 623 of Title VI (Customs
Modernization) of the North American Free Trade Agreement
Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993), is
not warranted. However, for entries on which liquidation has not
become final, as well as for future entries, appraisement is to be
fixed in accordance with the foregoing.
This decision should be mailed by your office to the party
requesting reconsideration of the internal advice 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 Rulings Module in ACS and the
public via the Diskette Subscription Service, Freedom of Information
Act and other public access channels.
Sincerely,
Stuart P. Seidel
Assistant Commissioner
Office of Regulations and Rulings
(1.) These payments included, but were not limited to: production
department expenses; quality control department expenses; employee
benefits, education and loans; work permits; travel and entertainment;
automobile expenses; meetings/seminars; membership/dues;
contributions/ donations; laundry and uniforms; newspaper
subscriptions; personnel recruitment; employee medical expenses;
utilities/telephone expenses; office equipment, maintenance and
supplies; employee loans; and plant maintenance, facilitation, and
supplies.
(2.) Likewise, we find this to be the case regardless as to whether
title transfers to the buyer once the goods are packed in a condition
suitable for shipment (bulkpacked) or once the goods are packed in the
condition as contemplated and required by the retail buyers
(redipacked).
(3.) Although Customs submits that such costs may constitute part of
the total payment, or price actually paid or payable, for the goods,
we acknowledge that Customs specifically has provided that amounts
will not be added to the price for packing costs incurred once the
merchandise has been packed ready for shipment.
(4.) In fact, insofar as it is our understanding that the retail
buyers of the merchandise specifically are paying for the merchandise
in a redipacked condition (i.e., pressed, placed on hangers, wrapped,
and bagged) it is questionable whether the redipacking operations are
not a prerequisite or condition precedent to exportation in any event.