VAL RR:IT:VA 546771 AJS
Area Director
U.S. Customs Service
Hemisphere Center, Routes 1 & 9 South
Room 200
Newark, NJ 07114
RE: Internal Advice 9/97; molds for glassware; assist;
presumption that payment is part of the price actually paid or
payable; Generra Sportswear Co. v. U.S.; Chrysler Corp. v. U.S.;
HRL 543983; C.S.D. 83-3; apportionment of payment; HRL 545264; 19
U.S.C. 1503; classification based on value of merchandise;
printing tools and die cut tools.
Dear Director:
This is in reply to internal advice (IA) request 9/97, dated
June 4, 1997, submitted on behalf of American Commercial Inc.
(Mikasa) concerning payments made to a foreign manufacturer for a
mold used in the production of imported merchandise. We regret
the delay in responding.
FACTS:
Mikasa is an importer of glassware. One manufacturer of
glassware for Mikasa is Inn Crystal (IC) in Austria. On February
9, 1996, Mikasa (i.e., buyer) submitted a purchase order to IC
(i.e., seller) for the purchase of 10,000 lead crystal mini-vases. The purchase order included a specified amount for a mold
cost. On February 29, 1996, Mikasa submitted a revised purchase
order for 12,504 vases. On June 30, 1996, IC submitted an
invoice to Mikasa for the mold cost.
Your request states that IC contracted with a third party in
Austria for the purchase of the mold in order to meet the
production requirements for the subject vases. Your request also
states that the mold is designed and made according to IC's
specifications and the mold maker is
paid by IC. At the time of purchase of the mold, the request
states that IC did not receive any money for the mold's purchase
from Mikasa. Mikasa stated that the mold cost was agreed to
orally with IC. Information in the file states that Mikasa and
IC are not related parties and that all transactions between the
two are at arm's length.
-2-
At the time of entry for the first shipment, Mikasa asserts
that it declared the entire cost of the mold and applied this
cost to the particular glassware item produced by the mold.
Mikasa asserts that the mold cost is part of the price actually
paid or payable for the subject vases. As such, Mikasa claims
the inclusion of the entire mold cost may be added to the price
actually paid or payable at the time of entry for the first
shipment.
For instance, the IC invoice for fully-leaded glass mini-vases, at DM 1.25 each, plus packing, converted at the quarterly
rate of 0.648803 yields a price of .90 cents for each vase.
Mikasa asserts such vases are classified in the provision for
other glassware, of lead crystal, valued not over $1 each, in
subheading 7013.91.10 of the Harmonized Tariff Schedule of the
United States (HTSUS), and are dutiable at the rate of 20% ad
valorem. As stated previously, a separate IC invoice billed
Mikasa for the mold cost required to make the subject vases. An
"add sheet" specifying the same mold cost was also provided.
Mikasa states that the addition of the mold cost results in a
unit value of more than $3.00 for each vase. Mikasa indicates
that fully-leaded glass vases valued over $3 each are classified
in subheading 7013.91.30 of the HTSUS at the lower duty rate of
10.5% ad valorem. Mikasa asserts that Customs will not permit
this addition to be made at the time of the first shipment,
insisting that the entry be made at the higher 20% rate under
subheading 7013.91.10, HTSUS. Mikasa also asserts that Customs
subsequently requires Mikasa to make a voluntary tender of duties
for the mold costs at the 20% rate of duty after the entry has
been made. Mikasa argues that if the resulting increases in the
unit price of the vases leads to a 10.5% duty rate under
subheading 7013.91.30, HTSUS, then Customs should permit entry at
the lower duty rate. Mikasa notes that it is understood that
subsequent shipments of the vases in that case will be entered
under subheading 7013.91.10, HTSUS, at the higher 20% duty rate
inasmuch as the entire mold cost will have been previously
apportioned over the first shipment.
Mikasa also raises the issue of the costs for printing tools
and die cut tools. The above add sheet also lists costs for
printing tools and die cut tools. Mikasa states that the tools
are used in the printing of the packaging for the vases. The
tools are purchased by Mikasa from a vendor in Austria and
provided free of charge to IC. Mikasa asserts that such tools
are assists. Mikasa additionally asserts that it should be
permitted to allocate the entire cost of the tools over the
number of vases in the first importation. As with the mold cost,
Mikasa argues that if the unit price of the subject vases
increases to the extent that the tariff rate decreases from 20%
to 10.5% such result should be permissible.
ISSUE:
Whether payment for the mold cost is part of the price
actually paid or payable for the imported merchandise pursuant to
19 U.S.C. 1401a(b)(4). In addition, what is the proper method of
apportionment of this payment.
-3-
Whether the subject tools are assists within the meaning of
section 1401a(h)(1)(A) whose value must be added to the price
actually paid or payable. In addition, what is the proper method
of apportionment of the value of the tools.
LAW AND ANALYSIS:
Merchandise imported into the U.S. 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
primary method of appraisement under the TAA is transaction
value, defined in section 1401a(b)(1), as the price actually paid
or payable for the merchandise when sold for exportation to the
United States, plus amounts for certain enumerated items.
The definition of an assist (in pertinent part) as set forth
in section 1401a(h)(1)(A) is:
. . . any 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: . . .
(ii) Tools, dies, molds and similar items used in the
production of the imported merchandise.
The term "price actually paid or payable" means 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).
There is a rebuttable presumption that all payments made by
a buyer to a seller, or a party related to a seller, are part of
the price actually paid or payable. See Headquarters Ruling
Letter (HRL) 545663 (July 14, 1995). This position is based on
the meaning of the term "price actually paid or payable" as
addressed in Generra Sportswear Co. v. United States, 8 CAFC 132,
905 F.2d 377 (1990). In Generra, the court 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.
-4-
In this case, Mikasa (i.e., the buyer) will pay IC (i.e.,
the seller) for the cost of the mold. Since payment for the mold
is made to the seller, there is a rebuttable presumption that the
payment is part of the price actually paid or payable for the
imported merchandise. Both you and Mikasa agree that the mold
payment is part of the price actually paid or payable. See also
HRL 543983 (December 2, 1987), HRL 542812 (July 19, 1982).
The IA request also raises the issue of the proper
allocation of the mold payment to the value of the imported
merchandise. Mikasa's position is that this payment may be
allocated to the first shipment of the subject merchandise. Your
position is that the value of this payment should be prorated
over the total number of items which will be produced (or over
the total number of items which will be purchased). You also
assert that the full value of this payment should not be
apportioned on a single shipment as is an option when an item is
an assist. See 19 CFR 152.103(e).
The Court of International Trade (CIT) addressed this issue
in Chrysler Corporation v.
U.S., 17 CIT 1049 (1993). In that case, the court ruled that
although certain shortfall and special application fees which the
buyer paid to the seller were not a component of the price
actually paid or payable, tooling expenses incurred for the
production of the merchandise were part of the price actually
paid or payable for the imported merchandise. The court found
that payment for the tooling expenses could be subject to some
form of allocation. The court further stated that what must be
determined is the price actually paid or payable for the imported
merchandise. The court emphasized that this price is the total
payment which may be direct or indirect, and that the price may
be the result of increases. The court concluded that what must
be determined is which portion of the payments were directly or
indirectly part of the price paid for the merchandise. The court
apportioned the tooling expenses over the value of the total
number of items intended to be produced and not the total number
of items imported. The court stated that it would be
"unrealistic and contrary to the facts of business life" to
apportion the payments any other way. The rationale for this
conclusion was that the payment was intended to affect the total
number of items purchased and not merely those imported. This
conclusion was based on purchase orders and contracts between the
parties as well as testimony which indicated that the parties
contracted to produce a minimum number of items during a
specified model period.
Subsequent to Chrysler, Customs has found apportionment
acceptable if it is reasonable and in accordance with generally
accepted accounting principles (GAAP). See HRL 545264 (August
12, 1994), HRL 544694 (February 14, 1995), and HRL 546430
(January 6, 1997).
As stated above, the court in Chrysler apportioned the
additional payment over the number of items intended to be
produced based on the intent of the parties and the evidence
presented. In this case, the two purchase orders submitted
appear to indicate that the number of
items the mold payment was intended to affect is 12,504 vases.
Therefore, the mold payment
-5-
should be apportioned over the 12,504 vases. However, if there
is be additional purchase orders or agreements which indicate
that additional vases are also involved, apportionment should be
adjusted accordingly. Based on Chrysler, apportionment should be
in this manner unless evidence to the contrary is submitted. The
mold payment should not be apportioned to a single shipment as
requested by Mikasa, because no evidence of the parties intention
to apportion to a single shipment was presented.
Mikasa also raises the issue of tools which are purchased by
Mikasa and provided free of charge to IC. These tools would
appear to satisfy the statutory definition of an assist within
section 1401a(h)(1)(A) in that they are tools supplied directly
and free of charge by the buyer of the imported vases for use in
connection with the production of these vases. As assists, the
tools would be subject to a manner of apportionment specified in
19 CFR 152.103(e). In this case, Mikasa choose to apportion the
value of the assist over the first shipment pursuant to section
152.103(e)(1)(i).
Mikasa notes that apportionment raises the issue of whether
the method of apportionment could affect the value of merchandise
for classification purposes. As stated previously, class-ification of the subject merchandise within the applicable
subheadings is dependent on the value of each item. For example,
subheading 7013.91.10, HTSUS, provides for glassware "valued not
over $1 each". Specifically, your request is concerned as to
whether a method of apportionment which changes the value of
merchandise also could change its classification. 19 U.S.C. 1503
provides that the basis for the assessment of duties on imported
merchandise subject to ad valorem rates of duty or rates based
upon or regulated in any manner by the value of merchandise shall
be the appraised value determined upon liquidation in accordance
with 19 U.S.C. 1500. Section 1500 requires Customs to fix the
final appraisement of merchandise by ascertaining or estimating
the value of the merchandise under 19 U.S.C. 1401a. Thus, the
value of merchandise determined by section 1401a can affect its
classification.
HOLDING:
The payment for the subject mold is part of the price
actually paid or payable for the imported merchandise within the
meaning of 19 U.S.C. 1401a(b)(4). This payment should be
apportioned over the number of vases intended to be produced
based on the analysis in Chrysler Corporation v. U.S.
The subject tools are assists within the meaning of 19
U.S.C. 1401a(h)(1)(A) whose value must be added to the price
actually paid or payable for the imported merchandise pursuant to
section 1401a(b)(1)(C). The value of the tooling may be
apportioned over the first shipment pursuant to 19 CFR
152.103(e).
-6-
This decision should be mailed by your office to the
internal advice requestor no later than 60 days from the date of
this letter. On that date the Office of Regulation and
Regulations 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,
Acting Director,
International Trade Compliance Division