RR:IT:VA 548532 RFC
Mr. John Imbrogulio
Customs Compliance Specialist
Nordstrom, Inc.
1617 Sixth Avenue, Suite 1000
Seattle, WA 98101
RE: Assists; Artwork; Design Work
Dear Mr. Imbrogulio:
This letter is in reference to your letter requesting an advance ruling from the Bureau of Customs and Border Protection (CBP) on whether certain artwork or design work constitutes an assist under the applicable law.
FACTS:
In the letter of request, the facts are presented as follows:
Nordstrom purchases “knitdowns” at market. These knitdowns are traditionally knit-to-shape items and are designed to simulate a panel of a garment in miniature form. In some cases, knitdowns may be made of non-knit material. These are not garmet parts but are produced to illustrate certain design features that the vendor is offering to the buyer for their exclusive use. These “knitdowns” may illustrate a unique knit design, a unique color combination or other identifiable design feature. These knitdowns are purchased both domestically and from foreign suppliers.
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After importation and/or internal review of these knitdowns, Nordstrom may use the design features purchased by these knitdowns to assist in the creation of product sold in our stores. The use of these design features varies depending on the item.
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Once the Nordstrom group has reviewed the knitdown and determined what their final design will be, we send a portion of the knitdown, either a hand sketch or CAD generated print color graphic of the final design, and colorway, or pitch, sheet to assign colors and color placement to our garment manufacturer so that they can create the finished product.
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It is our position that the cost of the knitdowns in question are not dutiable as an assist as the “designs” in question are not copied exactly as purchased. The knitdowns are used mainly as inspiration to create a design in the U.S. by Nordstrom employees domiciled in the United States.
As referenced in your request, an advance ruling was issued on the proper classification of the knitdowns. In NY D87084 (February 23, 1999), the knitdowns were stated to be imported from France and Italy and were described as follows:
Three samples, designated as ref KJ2506, KJ2533 and W004, accompanied your request for a ruling. These items are knit to shape and are designed to simulate a panel of a garment albeit in a scaled down (miniature) form. These items are not garment parts but are produced to illustrate certain design features which the vendor is offering to the buyer for his exclusive use. These “knitdowns” may illustrate a unique knit design, a unique color combination or other identifiable design feature. The knitdowns represent a transfer of the rights to certain features within a designated territory from the supplier. In this case reference KJ2506 features a complex jacquard knit pattern, reference KJ2533 features a unique embroidered floral design characterized by fabric applique and reference W004 features in part an open work knit and a textured floral design which has been printed on using what appears to be a pigmented plastic binder.
NY D87084 is available on the Customs Rulings Online Search System (CROSS) as found on the CBP web site (www.cbp.gov).
Samples of the knitdowns, sample instructions to Nordstrom’s suppliers on creating the designs on the finished garments and samples of finished
garments with the designs were submitted to this office.
ISSUE:
Whether artwork or design work found on a product described as a “knitdown” constitutes an assist when used to develop other artwork or design work in the United States that is subsequently used in the production of merchandise abroad that is imported into the United States.
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in 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. Section 402(b)(l) 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. In order for imported merchandise to be appraised under the transaction value method it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States.
One of the enumerated statutory additions is an “assist.” An assist is defined in U.S. statutory law for customs purposes as follows:
(1)(A) The term ``assist'' means 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:
(i) Materials, components, parts, and similar items
incorporated in the imported merchandise.
(ii) Tools, dies, molds, and similar items used in the
production of the imported merchandise.
(iii) Merchandise consumed in the production of the imported merchandise.
(iv) 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. (Emphasis added.)
(B) No service or work to which subparagraph (A)(iv) applies
shall be treated as an assist for purposes of this section if
such service or work--
(i) is performed by an individual who is domiciled within
the United States;
(ii) is performed by that individual while he is acting as
an employee or agent of the buyer of the imported
merchandise; and
(iii) is incidental to other engineering, development,
artwork, design work, or plans or sketches that are
undertaken within the United States.
(C) For purposes of this section, the following apply in
determining the value of assists described in subparagraph
(A)(iv):
(i) The value of an assist that is available in the public
domain is the cost of obtaining copies of the assist.
(ii) If the production of an assist occurred in the United
States and one or more foreign countries, the value of the
assist is the value thereof that is added outside the United
States.
19 U.S.C. §1401a(h)
The CBP regulations define an assist as follows:
(a) Assist. (1) ``Assist'' means 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:
(i) Materials, components, parts, and similar items incorporated
in the imported merchandise.
(ii) Tools, dies, molds, and similar items used in the production
of the imported merchandise.
(iii) Merchandise consumed in the production of the imported
merchandise.
(iv) 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. (Emphasis
added.)
(2) No service or work to which paragraph (a)(1)(iv) of this
section applies will be treated as an assist if the service or work:
(i) Is performed by an individual domiciled within the United
States;
(ii) Is performed by that individual while acting as an employee
or agent of the buyer of the imported merchandise; and
(iii) Is incidental to other engineering, development, artwork,
design work, or plans or sketches that are undertaken
within the United States.
(3) The following apply in determining the value of assists
described in paragraph (a)(1)(iv) of this section:
(i) The value of an assist that is available in the public
domain is the cost of obtaining copies of the assist.
(ii) If the production of an assist occurred in the United
States and one or more foreign countries, the value of the
assist is the value added outside the United States.
(iii) If the assist was purchased or leased by the buyer from
an unrelated person, the value of the assist is the cost of
the purchase or of the lease.
19 CFR § 152.102(a)
The legislative history to the Trade Agreements Act of 1979, as found in the Report of the House Committee on Ways and Means, states that an "assist" is:
[A] concept which, while taking on greater significance in customs valuation, has never before been defined by statute. The definition specifies those particular items or services which, when supplied directly or indirectly by the buyer of the imported merchandise, free of charge or at reduced cost, for use in connection with the production or the sale for export to the United States, are to be treated as an assist.
H.R. Rep. No. 317, 96th Cong., 1st Sess. 81 (1979).
As indicated above, an assist is simply a particular item or service that is 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 that 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.
With respect to artwork and design work, in prior decisions, the CBP has held that artwork or design work that is imported into the United States and used to “inspire” new or different artwork or design work is not an assist when the new work is sent to a manufacturer abroad to produce merchandise that is later imported into the United States. See 547578 (January 18, 2000) and 548097 (January 28, 2003). Conversely, artwork or design work purchased abroad and copied or reproduced in its original design or form without any significant changes or modifications (e.g., changes to the ornamental patterns or figures) as used in the production of merchandise abroad that is imported into the United States would logically constitute a dutiable assist.
In the instant case, as discussed above, you indicate that the “…’designs’ in question are not copied exactly as purchased. The knitdowns are used mainly as inspiration to create a design in the U.S. by Nordstrom employees domiciled in the United States.” You later reconfirmed this statement in subsequent communications with this office. The samples and other materials submitted appear to be new artwork or design work that is different from that as found on the knitdowns. As this new artwork or design work is created in the United States by employees of Nordstrom, it is not an assist. See 19 U.S.C. §1401a(h)(1)(B) and 19 CFR § 152.102(a)(2). See also HQ 547578 (January 18, 2000).
HOLDING:
Artwork or design work created in the United States from artwork or design work purchased from abroad and used solely as inspirational artwork or design work does not constitute a dutiable assist when used in the production of merchandise that is imported into the United States.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Virginia Brown, Chief
Value Branch