RR: IT: VA 547578 LOR
Category: Valuation
Ms. Julie White
Customs Compliance Manager
Nordstrom
1617 Sixth Avenue, Suite 1000
Seattle, Washington 98101
RE: Ruling Request: dutiability of designs/artwork purchased by Nordstrom and used as the inspiration for creating Nordstrom designs
Dear Ms. White:
We are in receipt of your ruling request dated November 8, 1999, made on behalf of Nordstrom Inc., a U.S. Corporation (hereinafter referred to as “Nordstrom”) and the samples that you subsequently sent. You request a ruling on the dutiability of design work and artwork that are purchased by Nordstrom and used as an inspiration for creating Nordstrom designs that can be incorporated into future garments.
FACTS:
According to your submission, employees from the Nordstrom Product Group (NPG) a division of Nordstrom purchase products that they feel can inspire them to create designs or patterns that could be used in a product designed by Nordstrom. These products are purchased from a variety of sources. After purchase, the products are turned over to computer aided design (CAD) artists in the U.S., also Nordstrom employees, to work with. The CAD artists modify the artwork/pattern by doing all or some of the following: recolor, change the spacing, create a repeat style pattern, remove designs, incorporate new designs and change the size of the prints.
Once the inspired design is created by Nordstrom design technicians, the printed copy is sent to the manufacturer along with color swatch cards that represent the colors that should be used. If pantone or scotdic numbers are available, these are sent with the colored print to show the manufacturer the correct colors to use. The manufacturer creates a strike off. The strike off is sent to the design technician for approval. Once the strike off is approved, sample fabrics may be made and sometimes sample garments. Depending on feedback from buyers’, orders may be placed, the pattern colors may change again, or the entire project may be abandoned. The original artwork that was used for inspiration is filed away in the NPG library for other design technicians to view and use.
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ISSUE:
Whether the design work created in the U.S. from foreign and domestic design work and artwork purchased for use as inspiration pieces constitute an assist within the meaning of
§ 402(h)(1)(A)(iv).
LAW AND ANALYSIS:
The preferred method of appraising imported merchandise is transaction value which is defined in § 402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreement Act of 1979 (TAA; 19 U.S.C. 1401a(b)). This section provides, in pertinent part, that the transaction value of the imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States plus amounts for certain items enumerated in section 403(b)(1) of the TAA. 19 U.S.C. § 1401a(b)(1)(c) provides that the transaction value of imported merchandise includes . . . “the value, apportioned as appropriate, of any assist”. The corresponding regulation is found in section 152.103(d), Customs Regulations (19 CFR § 152.103(d)).
An assist as defined in TAA § 402(h)(1)(A) must be 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. An assist includes 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. 19 U.S.C. 1401a(h)(1)(A)(iv).
In the situation that you describe, the printed copy sent to the foreign manufacturer is not an assist pursuant to § 402 (h)(1)(A)(iv). Customs has consistently held that design work undertaken in the U.S. is not an assist. HRL 542146 dated November 25, 1980 (TAA No. 12), aff’d. by HRL 542419 dated June 2, 1981. Nordstrom employees domiciled in the United States, use the foreign and domestic designs/artwork to create new design work and artwork in the United States. Thus, the original design work and artwork is transformed to the extent that they no longer exist in the original form. The product sent to the foreign manufacturer is U.S. artwork and design work. The submitted samples demonstrate to our satisfaction the creation of new U.S. artwork and design work. Because U.S. design work is not by definition an assist, it is not an addition to the price actually paid or payable in determining the transaction value of the imported merchandise.
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HOLDING:
Design work created in the U.S. from foreign and domestic artwork and design work purchased for use as inspiration pieces does not constitute an assist within the meaning of 19 U.S.C. § 402(h)(1)(A)(iv) and, therefore, are not included within the transaction value of the imported merchandise.
Sincerely,
Thomas L. Lobred
Chief, Value Branch