RR:IT:VA 547142 LR
David R. Ostheimer, Esq.
Lamb & Lerch
233 Broadway
New York, New York 10279
RE: Request for ruling regarding flashlights; FTZ; 19 C.F.R. §146.65
Dear Mr. Ostheimer:
This is in reply to your letter dated July 27, 1998, requesting a ruling on behalf of Dorcy International, Inc., (Dorcy) regarding the appraisement of flashlights entered into the customs territory of the United States from a U.S. foreign trade zone (FTZ). Additional information was provided in your August 19, 1998 and October 9, 1998 submissions.
FACTS:
Dorcy utilizes a FTZ for the purpose of admitting non-privileged foreign status flashlights, consisting of a plastic housing, a bulb and the carton in which the flashlights are packed. While in the FTZ, Dorcy removes the flashlights from the carton; inspects the flashlights and replaces any defective bulbs and repackages the flashlights in domestic status blister packs and domestic status cartons. Any of the non-privileged foreign status bulbs which are found to be defective are replaced with domestic status bulbs. The cost for each component of the non-privileged foreign status flashlight is broken out on the commercial invoice. These component breakdowns are supplied by the seller and are based upon allocation of the selling price of the merchandise made in accordance with generally accepted accounting principles. The component breakdowns always equal the exact invoice price for the flashlight. As an example, you submitted an invoice for imported flashlights and lanterns from Dorcy International (HK) Ltd. to Dorcy with the referenced breakdowns.
In the FTZ, the non-privileged foreign status cartons are run through a baler machine in which they are crushed and then wrapped together. The crushed cartons are sold on a periodic basis as recyclable waste and entered duty-free as scrap or waste. You submitted an invoice relating to the sale of the cartons to a recycler and evidence of payment.
The defective non-privileged foreign status bulbs are either reexported to the foreign supplier or destroyed under Customs supervision within the FTZ.
Your ruling request concerns the proper appraisement of the flashlights (consisting of the non-privileged foreign status plastic housing with a domestic status bulb) when entered into the customs territory of the U.S. in a domestic status blister pack and domestic status carton. You conclude that it should be appraised based only upon the value of the foreign plastic housing.
Your ruling requests also concerns the proper appraisement of the non-privileged foreign status cartons when entered into the customs territory of the U.S. for sale as recyclable waste. You conclude that they should be appraised pursuant to 19 C.F.R. §146.65(b)(2), at the price actually paid to Dorcy for the recyclable waste.
ISSUES:
1. What is the proper appraisement of the flashlight (consisting of a non-privileged foreign status plastic housing, domestic status bulb, and domestic status blister pack and carton) when entered into the customs territory of the U.S. from a FTZ?
2. What is the proper appraisement of the non-privileged foreign status cartons which have been crushed and bundled in the FTZ and sold as recyclable waste when entered into the customs territory of the U.S. from the FTZ?
LAW AND ANALYSIS:
Section 3(a) of the Foreign Trade Zones Act, as amended (19 U.S.C. §81c), provides that foreign articles sent into the customs territory after having been manipulated or manufactured in a FTZ are subject to the laws and regulations affecting imported merchandise. Section 146.65(b), Customs Regulations (19 C.F.R. §146.65(b)) sets forth the method to determine the total zone value and dutiable value for merchandise imported into the U.S. from a FTZ.
In accordance with 19 C.F.R. §146.65(b)(2), the dutiable value of privileged and non-privileged foreign merchandise sent into the customs territory from a FTZ is the price actually paid or payable for the merchandise in the transaction that caused it to be admitted to the zone, plus the statutory additions enumerated in section 402(b)(1)(A)-(E) of the Tariff Act of 1930, as amended by the Trade Agreement Act of 1979 ((TAA: 19 U.S.C. §1401a). If there is no such price actually paid or payable (or no reasonable representation of that cost), or of the statutory additions, the dutiable value is based on the total zone value, i.e., the price actually paid or payable to the zone seller in the transaction that caused the merchandise to be transferred from the zone less specified costs incurred in the zone which are included in that price. See 19 C.F.R. §146.65(b)(1)& (2).
Appraisement of the Flashlights
As provided in 19 U.S.C. §81c, only foreign merchandise which is sent from a zone into the customs territory of the United States shall be subject to the laws and regulations of the United States affecting imported merchandise. In the scenario presented, although non-privileged foreign status merchandise is admitted into the FTZ, while in the FTZ, the defective foreign bulbs are replaced with domestic status U.S. bulbs and the foreign packaging is replaced with domestic status packing. Thus, the only foreign merchandise comprising the flashlights that is sent from the zone into the customs territory of the United States is the plastic housing. Assuming that Dorcy has the necessary records to establish that the bulbs and packaging are in fact domestic, in accordance with 19 U.S.C. §81c, only the plastic housing is subject to appraisement under 19 U.S.C. §1401a.
Pursuant to 19 C.F.R. §146.65(b)(2), the dutiable value of the plastic housing is the price actually paid or payable for the housing, or a reasonable representation of that cost, in the transaction that caused the merchandise to be admitted into the zone. Although there is no separate price actually paid or payable for the plastic housing (as opposed to the price paid for the flashlight), in view of the fact that the seller’s commercial invoice for the flashlight provides a component breakdown for the housing, bulb and cartons which is equal to the exact invoice price for the flashlight and that such breakdown is based upon allocation of the selling price of the merchandise made in accordance with generally accepted accounting principles, we are satisfied that the component breakdown amount for the housing set forth on the seller’s invoice is a reasonable representation of its price actually paid or payable. Accordingly, this is the amount upon which the dutiable value of the housing should be based.
We agree that the for appraisement purposes the value of the foreign status cartons should not be added to the value of the housing. As provided in 19 C.F.R. 146.65(a)(2), non-privileged foreign merchandise is subject to tariff classification in accordance with its character, condition and quantity as constructively transferred to Customs territory at the time the entry or entry summary is filed with Customs. In this case, since the non-privileged foreign cartons are entered into the customs territory separately and not with the flashlights, their value is not included in the appraised value of the flashlights. Rather, as provided below, they are appraised separately.
Appraisement of the Foreign-status Cartons
You contend that the foreign status cartons which are crushed in the zone and sold as recyclable waste should be appraised pursuant to 19 C.F.R. §146.65(b)(2) at the price actually paid to Dorcy for the recyclable waste. We agree. As indicated above, this section provides that if there is no price actually paid or payable for the merchandise in the transaction that caused the merchandise to be admitted into the zone (or no reasonable representation of the cost), the dutiable value may be determined based on the total zone value, with exclusions for zone costs which are included in that value. Total zone value is defined in 19 C.F.R. §146.65(b)(1) as the price actually paid or payable to the zone seller in the transaction that caused the merchandise to be transferred from the zone.
In this case, there is no price actually paid or payable for the crushed foreign-status cartons in the transaction that caused the merchandise to be admitted into the zone. Therefore, dutiable value is to be based on the total zone value, i.e., the price actually paid or payable to the zone seller in the transaction that caused the merchandise to be transferred from the zone. In this case, this is the price paid to the zone seller for the recyclable waste. Accordingly, the dutiable value of the crushed cartons would be based on this price.
HOLDING:
Subject to the provisos noted above, for appraisement purposes, the value of the non-privileged foreign status plastic housing when entered into the customs territory of the U.S. with a domestic status bulb, in a domestic status blister pack and domestic status carton does not include the value of the foreign status bulb nor foreign status carton, but is limited to the value of the foreign status plastic housing as provided in the seller’s commercial invoice.
For appraisement purposes, the value of the non-privileged foreign status cartons which are sold as recyclable waste is the price paid to Dorcy for the recyclable waste as set forth on the commercial invoice.
Sincerely,
Thomas L. Lobred
Chief, Value Branch