VAL RR:IT:VA 559570 LPF
Port Director
U.S. Customs Service
300 S. Ferry Street
Terminal Island, CA 90731
RE: Application for further review of protest no. 2704-95-100675; Valuation of components used in assembly of automobiles; Subheading 9802.00.80; 19 CFR 10.17; Reasonable cost or value; HRLs 546336, 557841, 557615.
Dear Director:
This is a decision on an application for further review of a protest filed February 23,
1995, against your decision concerning the valuation of U.S. components used in the assembly of
automobiles subsequently imported into the U.S. The entries were liquidated on November 25,
1994. We have granted confidential treatment as provided in [***************] (importer's)
May 28, 1997 letter to the names and identity of the transacting parties and suppliers; part
numbers; prices; model names and numbers; and names of individuals. A meeting was held with
the importer and their counsel on April 11, 1996. We regret the delay in responding.
FACTS:
This protest review decision concerns the value, as provided in section 10.17, Customs
Regulations (19 CFR 10.17), of fabricated U.S. components appropriately deducted from the full
value of automobiles assembled by [***************] (foreign producer) and imported by the
importer which are entitled to a duty exemption under subheading 9802.00.80, Harmonized
Tariff Schedule of the United States (HTSUS). While there is no dispute concerning whether the
components are U.S. made, were exported in condition ready for assembly without further
fabrication, or were assembled without having lost their physical identity nor having been
advanced in value or improved in condition, an issue persists concerning the value to be
deducted for the U.S. components themselves. Four such components remain at issue, including:
[***************] (component A) produced by [***************] (U.S. Company A),
[***************] (component B) produced by [***************] (U.S. Company B),
[***************] (component C) produced by [***************] (U.S. Company C), and
[***************] (component D) produced by [****************] (U.S. Company D).
The importer has provided the following documentation which it claims establishes the lowest
price paid in 1994 for each of the different types of components and should be used as the cost or
value of the components.
We understand that U.S. Company A sells component A to their foreign affiliate who in
turn sells the components to the foreign (automobile) producer. In response to the importer's
request for actual lowest prices of the components, U.S. Company A provided a letter dated May
29, 1996 certifying that the components were sold to the foreign (automobile) producer at the
U.S. FOB export prices provided or at higher amounts. A June 1, 1995 letter from Company A
certifies that they are the manufacturer of component A sold to the foreign producer, the part
numbers of which are listed in their March 8, 1995 certification to the importer.
We understand that [***************] (U.S. trading company) purchases components
B, C and D which [***************] (foreign trading company) in turn purchases at the
invoice price. With regard to component B, a July 11, 1994 invoice from the U.S. trading
company to the foreign trading company provides the unit prices for the components. A June 1,
1995 letter from U.S. Company B certifies that they are the manufacturer of component B sold to
the U.S. trading company, the part numbers and prices of which are listed in the March 15, 1995
certification from U.S. Company B to the importer.
With regard to component C, a June 7, 1994 invoice from the U.S. trading company to
the foreign trading company provides the unit prices for the components. A May 23, 1995 letter
from the U.S. trading company to the importer certifies the lowest U.S. FOB export price and a
June 5, 1995 letter from Company C certifies that they are the manufacturer of component C sold
to the U.S. trading company, the part number of which is listed in the March 15, 1995
certification from U.S. Company C to the importer.
With regard to component D, a June 9, 1994 invoice from the U.S. trading company to
the foreign trading company provides the unit prices for the components. A May 18, 1995 letter
from the U.S. trading company to importer certifies the lowest U.S. FOB export price and a June
6, 1995 letter from U.S. Company D certifies that they are the manufacturer of component D
sold to the U.S. trading company, the part numbers of which are listed in the March 24, 1995
certification from U.S. Company D to the importer.
The foreign producer also has provided an assembler's declaration dated May 23, 1995
providing that the model year 1995 automobiles included the listed fabricated components and
that the U.S. port of export price was at least equal to the amount indicated. Furthermore, it is
our understanding from a conversation held telephonically on January 3, 1997 with the importer
that the components only are used in the assembly of automobiles for that particular model year
and never are utilized in automobiles of subsequent model years.
Your office questions whether the asserted lowest prices do, in fact, represent the lowest
prices paid during the year and whether the importer has shown a reliable connection between
the prices and the components used in the subject automobiles. Additionally, you submit that
because the importer has not shown how much time passes between the transactions reflected in
the submitted documents and when the finished automobiles actually are shipped and entered
into the U.S., Customs cannot ascertain whether the prices really reflect the lowest prices spent
for the components assembled in the automobiles. In this regard you cite to HRL 557615, issued
September 7, 1994, and HRL 557841, issued December 22, 1994, which discuss the "standard
turnaround time" methodology and stress the importance of basing such values on actual, as
opposed to theoretical, prices.
You do not believe the invoices showing transactions between the U.S. trading company
and the foreign trading company serve as sufficient evidence of the prices paid to the U.S.
vendors. In sum, without direct evidence of the actual vendor prices nor evidence of "standard
turnaround times," you submit that Customs may reject the importer's claims.
ISSUE:
Whether the submitted documentation reflects the lowest price for the U.S. components
when last purchased, FOB U.S. port of export, and provides a reasonable cost or value within the
meaning of 19 CFR 10.17.
LAW AND ANALYSIS:
Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:
[a]rticles . . . assembled abroad in whole or in part of fabricated
components, the product of the United States, which (a) were exported in
condition ready for assembly without further fabrication, (b) have not lost
their physical identity in such articles by change in form, shape or
otherwise, and (c) have not been advanced in value or improved in
condition abroad except by being assembled and except by operations
incidental to the assembly process, such as cleaning, lubricating and
painting.
As previously mentioned, all concerned parties agree that the three requirements of
subheading 9802.00.80, HTSUS, are satisfied and that the U.S. components may be eligible for a
duty allowance. The only issue we understand which remains to be determined concerns the
appropriate value of the U.S. components.
In this regard, an article entered under subheading 9802.00.80, HTSUS is subject to duty
upon the full value of the imported assembled article, less the cost or value, within the meaning
of 19 CFR 10.17, of the U.S. components assembled therein. 19 CFR 10.17 provides the
following concerning the determination of the cost or value of the U.S. components:
[t]he value of fabricated components to be subtracted from the full value
of the assembled article is the cost of the components when last purchased,
f.o.b. United States port of exportation or point of border crossing as set
out in the invoice and entry papers, or, if no purchase was made, the value
of the components at the time of their shipment for exportation, f.o.b.
United States port of exportation or point of border crossing, as set out in
the invoice and entry papers. However, if the appraising officer concludes
that the cost or value of the fabricated components so ascertained does not
represent a reasonable cost or value, then the value of the components
shall be determined in accordance with section 402 or section 402a, Tariff
Act of 1930, as amended (19 U.S.C. 1401a, 1402).
As reiterated in HRL 546336, issued September 19, 1996, it is Customs position that the
"cost of components when last purchased," refers to the price in effect at the date of exportation.
However, in citing to HRL 557841, issued December 22, 1994, Customs provided in HRL
546336, supra, that it:
. . . recognizes the difficulty in tracking the cost of a specific U.S. part sent
abroad to be incorporated in a returned article, when numerous parts are
sent abroad and returned on a continuing basis. As a result, and as a
logical extension of Customs position, under certain circumstances related
to the difficulty in tracking the cost of a specific U.S. part, Customs may
accept as evidence of the "cost of the components when last purchased"
under 19 CFR 10.17, a cost determined through an appropriate
methodology in lieu of a method of direct identification of the cost of the
specific U.S. component.
Accordingly, in HRL 557615, issued September 7, 1994, Customs accepted a
methodology for determining U.S. component prices based on a standard turnaround time for the
components. In that case, it was explained that the standard turnaround time would be the
interval between the day a U.S. component was exported from the U.S. and the day the finished
product incorporating the component was exported from the foreign country of production. For
instance, assuming the standard turnaround time for a given component is 43 days, for purposes
of 19 CFR 10.17, the price of the U.S. component would be the price invoiced on the day which
was 43 days before the day on which the finished product incorporating the U.S. export was
exported form the foreign country of production.
However, when addressing the scenario presented in HRL 546336, supra, Customs
explained that:
the second sentence of 19 CFR 10.17 should . . . be read to give the
appraising officer the latitude to conclude that a cost or value that does not
conform to the requirements of the first sentence, or previously accepted
methodology, may nevertheless be reasonable, thereby avoiding the need
to invoke section 402.
Therefore, although the importer in HRL 546336, supra, did not have access to the FOB price,
U.S. port of export, nor had access to other information related to the transactions, such as
shipping and receiving records and exported quantities necessary to administer price application
by the standard turn around time method, Customs still found the proposed methodology to
determine the cost of the components when last purchased, FOB U.S. port of exportation to be
reasonable within the meaning of 19 CFR 10.17. Specifically, Customs noted that by obtaining
price certifications from the U.S. component manufacturers and being notified of price changes,
Customs was satisfied that it would be able to obtain the lowest price that could apply to any
given component for purposes of 19 CFR 10.17. Customs agreed that the lowest price was
reasonable for at least three reasons: first, the lowest price was an actual price and not an
estimate or average; second, it was the price, FOB U.S. port of exportation or U.S. factory; and
third, it fully protected the revenue, since the lower the price the lesser the deduction from the
full value.
Under the same rationale, we are satisfied that the submitted documentation provides
Customs with the lowest actual price for the U.S. components when last purchased, FOB U.S.
port of export and, consequently, represents a reasonable cost or value for the fabricated
components. In particular, we note that the submitted invoices, certifications, and declarations
are consistent insofar as they reveal the same product and part/model descriptions, numbers, and
prices when last purchased, FOB U.S. port of export. In the case of components B, C and D we
understand the last export purchase price to be that paid by the foreign trading company to the
U.S. trading company. Moreover, as was the case in HRL 546336, supra, the components at
issue only are used in assembling automobiles for a particular model year. Accordingly, we find
such documentation to establish a reasonably reliable connection between the prices and
components used in the imported automobiles and to reasonably allay any concerns regarding
the time elapsed between the transactions reflected in the documents and the time when the
finished automobiles actually are shipped and entered into the U.S.
With regard to future importations of this nature, the importer should develop appropriate
internal controls, if they have not already done so, to ensure the accuracy of the information used
in such value determinations. For instance, in HRL 546336, supra, because the importer was
required to maintain copies of the invoices reflecting the prices and price changes, whether
increases or decreases, for each component part number and to provide these invoices to
Customs, if requested, Customs was able to verify the claimed cost or value of the components at
any given time. Likewise, the instant importer should have appropriate controls in place to
enable them to produce such documentation when requested by Customs to verify such costs or
values.
HOLDING:
The submitted documentation reflects the lowest price for the U.S. components when last
purchased, FOB U.S. port of export, and provides a reasonable cost or value within the meaning
of 19 CFR 10.17.
You are directed to grant the protest in accordance with the foregoing. A copy of this
decision with the Form 19 should be sent to the protestant.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August
4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the
protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in
accordance with the decision must be accomplished prior to mailing of the decision. Sixty days
from the date of the decision, 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 to the
public via the Diskette Subscription Service, the Freedom of Information Act and other public
access channels.
Sincerely,
Acting Director
International Trade Compliance Division