VAL RR:IT:VA 546690 CRS
Ms. Valerie Larabee
Senior Regional Import Manager, PNW
Fritz Companies, Inc.
1201 C Street, N.W.
Auburn, WA 98001-3937
RE: Dutiability of packing costs
Dear Ms. Larabee:
This is in reply to your letter of March 12, 1997, in which you requested a ruling on behalf of your client, Nordstrom, Inc., concerning the dutiability of certain packing costs.
FACTS:
You have advised that Nordstrom is considering shifting its distribution process to the vendor/forwarder level and have described this initiative, known as the "Floor Ready Project", as follows. The seller packs the goods in cartons and delivers them to Fritz Transportation International offices overseas for loading into containers. Fritz personnel receive the cartons and shipping documents from the sellers. Fritz personnel open the cartons, scan the tags on the goods, reseal the cartons and attach labels to the outside of the cartons. Fritz personnel prepare packing lists based on the actual quantities in the cartons. If the packing list does not match the seller’s documents, the seller is contacted to correct the paperwork. Packing list information is sent via EDI to Nordstrom in the U.S. to verify that the quantities match the quantities stated on the purchase orders. If the goods are acceptable the cartons are loaded by destination; if they are unacceptable, the cartons are pulled and Fritz personnel await instructions. If the goods must be returned, Fritz personnel contact the seller. If the Fritz Company is asked to sort and repack the goods, the cartons are opened and repacked prior to being loaded into containers. The documents are corrected to match the shipment.
In respect of the above you have posited three scenarios. First, you have asked if the cost of opening, scanning and resealing the cartons, including labor costs, is dutiable. In the second scenario you posit that the cartons have been packed incorrectly such that they must be reopened and repacked. You have asked whether the costs associated with these operations constitute packing costs. Alternatively, if the seller of the goods pays for the cost of repacking, does not bill Nordstrom for these costs nor include them in the price of the imported goods, you have asked if these amounts would be considered packing costs and included in the appraised value of the imported merchandise.
ISSUE:
The issue presented is whether costs associated with this operation constitute packing costs such that they are included in the appraised value of the imported merchandise.
LAW AND ANALYSIS:
As you know, merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. § 1401a; the "TAA"). The primary basis of appraisement under the TAA is transaction value, defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States", plus certain enumerated additions thereto including the packing costs incurred by the buyer with respect to the imported merchandise. 19 U.S.C. § 1401a(b)(1). However, an addition for packing costs incurred by the buyer will be made only to the extent that the costs are not otherwise included in the price actually paid or payable.
The term "packing costs" is defined as "the cost of all containers and coverings of whatever nature and of packing, whether for labor or materials, used in placing merchandise in condition, packed ready for shipment to the United States." Packing costs do not include costs incurred for instruments of international traffic. 19 C.F.R. § 152.102(e).
For purpose of this letter, we have assumed that transaction value is the appropriate basis of appraisement. In the first and second scenarios you posit, it is our position that the costs in question would constitute packing costs and would be included in transaction value as an addition to the price actually paid or payable. Based on the information presented the costs are incurred in order to place the imported merchandise in condition, packed ready for shipment to the United States. In the third scenario, however, where the buyer does not incur any charges, or the costs are included in the price, no addition to the price actually paid or payable would be required.
HOLDING:
In conformity with the foregoing, the costs for the operations described above are included in transaction value as an addition to the price actually paid or payable in the first and second scenarios. If the buyer does not incur any packing charges, or the packing costs are included in the price, as in the third scenario, no addition to the price actually paid or payable would be required.
Sincerely,
Acting Director
International Trade Compliance Division