RR:IT:VA 547175 LR
Mr. Harvey A. Isaacs
Mr. Louis S. Shoichet
Tompkins & Davidson, LLP
One Astor Plaza
1515 Broadway
New York, NY 10036-8901
RE: Preparation of Bid Specifications; Price Actually Paid or Payable; Assists
Dear Messrs. Isaacs and Shoichet:
This is in response to your letters of September 2, 1998, and February 10, 1999, on behalf of North American Lighting Company, Inc. (NAL), concerning the appraisement of certain tools and gauges used to produce parts for automotive lighting fixtures imported by NAL. You request that this letter apply to prospective shipments of tools and gauges only. We regret the delay in responding.
FACTS:
NAL is a joint venture of three companies, one of which is Ichikoh Industries, Ltd. (IKH). IKH produces lighting fixtures for automobiles manufactured in Japan, and NAL manufactures lighting fixtures for automobiles produced in the U.S. and Canada. NAL typically manufactures the body of the head lamp (housing and lens) as well as various component parts. Other parts and components, such as wiring harnesses and bulbs, are purchased either from unrelated vendors or from NAL’s parent companies at what you describe as arms’ length prices.
You state that, in the course of designing new automobiles, car manufacturers solicit bids from independent parts suppliers for the production of various components, including head lamps and rear lamps. To facilitate this process, the car manufacturer provides written specifications of the lighting fixture together with drawings of the space which will accommodate the fixture to the suppliers, including NAL. At times a rough drawing of the fixture is also provided. Based upon these specifications, NAL will submit a bid reflecting the following elements: (1) the manufacturing cost of the tools and gauges required to make the component parts produced by NAL; and (2) the NAL costs and profit to produce the parts which it manufactures and to resource those it does not. Depending upon the production schedule for the automobile, NAL will develop the bid and associated blueprints itself, or it may request that IKH provide this information.
You state that, as of the beginning of 1998, NAL has agreed to pay IKH a fee for the preparation of the bid specifications and blueprints for the various components necessary to produce the finished headlight, taillight, or indicator lamp. Although no actual or sample specifications and blueprints to be provided by IKH have been submitted, you indicate that they relate only to the lighting fixture, its parts and components only and not to any specifications, details or instructions relating to the imported tools and gauges. You also state that the specifications and blueprints will illustrate the physical characteristics and dimensions of the finished lamp. From the information received, NAL prepares its bid to the car manufacturer.
After a bid by NAL is accepted, NAL will then place orders for production of required tools and gauges as well as the out-sourced components. If time permits, in addition to the bid received from IKH, NAL will seek competitive bids for the manufacture of the tools and gauges from unrelated companies in the U.S. If time does not allow for this and/or where IKH is the lowest bidder for the tools and gauges, they will be ordered from IKH. IKH may either produce the tools and gauges itself, or may order them from other companies not located in the U.S. which are experienced fabricators with the requisite skills and experience necessary to design and produce the ordered product. In either case, you state that the manufacturer of the tools and gauges is responsible for designing and preparing the shop drawings used in the production of these items. You indicate that the blueprints are not used directly in the manufacture of the imported tools and gauges.
ISSUE:
Whether the fee paid by NAL to IKH for the preparation of bid specifications and blueprints is an element of transaction value of the imported tools and gauges either as part of the price actually paid or payable or as an addition thereto as an assist.
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the U.S. is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. §1401a. 19 U.S.C. §1401a(b)(1) 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 enumerated statutory additions.
For purposes of this ruling, we will assume that transaction value is the proper basis of appraisement. Although it is our understanding that the parties are related within the meaning of 19 U.S.C. §1401a(g)(1), this issue has not been raised in the ruling request and we will not address it in this ruling.
Although your submission concentrates on whether the fee paid by NAL to IKH for the bid specifications constitutes an assist, which is one of the enumerated statutory additions, we must first determine whether the fee is part of the price actually paid or payable for the imported tools and gauges.
The "price actually paid or payable" is defined in 19 U.S.C. §1401a(b)(4)(A) 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."
Several court cases have addressed the meaning of the term "price actually paid or payable." In Generra Sportswear Co. v. U.S., 8 CAFC 132, 905 F.2d 377 (1990), 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. Accord, Tikal Distributing Corp. v. United States, Slip Op. 00-24 (Ct. Intl. Trade, decided February 28, 2000).
In Chrysler Corporation v. U.S., 17 CIT 1049 (1993), 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.
It has been our position that based on Generra, there is a presumption that all payments made by a buyer to a seller, or a party related to the 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. See HQ 545663, dated July 14, 1995.
Customs has previously ruled that payments to the seller for expenses incurred for design and development of the imported merchandise, including the development of prototypes and other development costs, are part of the price actually paid or payable for the imported merchandise. See HQ 546000, dated September 6, 1996.
The issue presented in this case is whether the fee NAL pays to IKH for the specifications and blueprints is for the design and development of the imported tools and gauges or otherwise relates to the imported tools and gauges. If so, it would be an element of the price actually paid or payable for the imported tools and gauges. We find that the specifications and blueprints do not relate to the imported merchandise.
In this case, there are two separate manufacturing transactions, the production of the tools and gauges and the production of the lighting fixtures. The two appear to be separate and independent from one another. Based on your description, the blueprints and specifications prepared by IKH relate to the production of the lighting fixtures and not the production of the tools and gauges used to produce the lighting fixtures. Specifically, the blueprints included in the bid specifications contain only the specifications for the various components necessary to produce the particular lighting fixture, and not the means of producing the imported tools and gauges; the blueprints are not used directly in the production of the imported tools and gauges; and, the manufacturer of the tools and gauges is responsible for designing and preparing the shop drawings used in the production of these items. We also note that the preparation of the bid specifications takes place prior to NAL placing orders for production of the tools and gauges. If NAL’s bid is not accepted, NAL will not place an order for the tools and gauges, and IKH will therefore not provide the tools and gauges.
Although no documentation relating to IKH’s work product has been submitted, based on your description, we find that the fee paid to IKH for the preparation of the items is not related to the imported tools and gauges nor to their design and development. Therefore, we find that the fee is not part of the price actually paid or payable of the imported products.
We further find that the fee paid by NAL to IKH for the preparation of the bid specifications does not constitute an assist such that is an addition to the price actually paid or payable for the tools and gauges. The term "assist" is defined in 19 U.S.C. §1401a(h) as follows:
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:
Materials, components, parts, and similar items incorporated in the imported merchandise.
Tools, dies, molds, and similar items used in the production of the imported merchandise.
Merchandise consumed in the production of the imported merchandise.
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 HQ 544381, dated November 25, 1991, we stated that:
[i]t has been Customs position that a payment of money from the buyer to the foreign manufacturer does not constitute an assist within the meaning of402(h)(1)(A). In Headquarters Ruling Letter (HRL) 543376, dated November 13, 1984, Customs held that a payment by an importer to a foreign manufacturer for the design and development of a prototype industrial robot was not an assist, but rather was dutiable as part of the price actually paid or payable to the seller as a direct payment for the prototype.
In this case, NAL does not provide any the items specified above for use in connection with the production or the sale for export to the United States of the imported gauges and tools. Rather, NAL pays IKH a fee for preparation of certain specifications and blueprints. In accordance with the above rulings, we find the fee does not constitute an assist to be added to the price actually paid or payable of the imported gauges and tools.
HOLDING:
Based on the information provided, including your description of the bid specifications and blueprints, the fee paid by NAL to IKH for the preparation of
bid specifications and blueprints is not part of the price actually paid or payable for the imported tools and gauges; nor does it constitute an assist to be added to the price actually paid or payable.
Sincerely,
Thomas L. Lobred
Chief, Value Branch