CLA-02 OT:RR:CTF:VS H019749 NL
Port Director
U.S. Customs & Border Protection
P.O. Box 3130 Laredo, TX 78044-3130
Att’n Import Specialist Yadira Medina
Office of Regulatory Audit
Nashville Branch Office
1415 Murfreesboro Pike, Suite 602
Nashville, TN 37217
Att’n Sherry Hiatt, Cindy Mackdanz
RE: Deductive Value; Profits and General Expenses; §152.105(e)
Dear Ms. Medina, Ms. Hiatt & Ms Mackdanz:
This is in response to the request for internal advice submitted by Star USA International Trade Services, Inc. on behalf of its client, Parker Hannifin Corporation (“PH”). The request, dated October 31, 2006, was forwarded to our office on October 31, 2007. The request concerns the presentation and use of certain expenses in the preparation of calculations for appraisement under deductive value.
FACTS:
Among other businesses, PH imports replacement assemblies for use as replacement parts in automotive heating and cooling systems, consisting generally of tubes and hoses. These components are produced pursuant to specific customer orders at a facility operated by the Mobile Climate System Division of PH. This Division assembles to order using parts provided by PH at no cost. There is no sale between these related parties of the finished components; the components are not sold until PH delivers them to its customers in the U.S. Consequently deductive value is being used as the method of appraisement.
Entries have been made under the CPB reconciliation program using standard costs to calculate deductions from the prices at which the merchandise was sold in the U.S. The company now has submitted to a Focused Assessment review by CBP auditors and is seeking approval of its procedures for adjusting the deductible amounts based on standard costs to deductions that reflect actual costs. This office has reviewed fiscal year operating statements for the Monterrey and Montemorelos plants which set forth current month, year-to-date and forecast net sales, profit and general and administrative expenses as of June, 2006. Deductive value is being calculated using actual net sales and subtracting actual profit and actual general and administrative expenses. We understand that your office has concluded that these amounts were consistent with profits and general expenses realized by the company for merchandise of this class or kind, i.e., tubes and hoses for automotive heating and cooling systems. Therefore the profits and general expenses associated with the instant importations are being treated as acceptable values for deductions from price pursuant to 19 CFR §152.105(e).
ISSUE:
May the profits and general administrative expenses as calculated by the importer be used to calculate deductive value?
LAW & ANALYSIS:
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 (TAA: 19 U.S.C. §1401a). The preferred method of appraisement is transaction value; however, when imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. Sections 402(a) through (f) of the TAA provide the hierarchy of methods used when appraising imported merchandise. By agreement of the parties, the method of appraisement, deductive value, is not at issue.
When utilizing deductive value, merchandise is appraised based on the price at which it is sold in the U.S. in the greatest aggregate quantity at or about the time of importation. Provided the merchandise is not further processed, the unit price at which imported merchandise is sold in
the greatest aggregate quantity means the unit price at which it is sold to unrelated persons at the first commercial level after importation. Section 402(d)(2)(B) of the TAA.
The price determined under section 402(d) is to be reduced by an amount equal to the following:
(i) any commission usually paid or agreed to be paid,
or the addition usually made for profit and general
expenses, in connection with sales in the United States
of imported merchandise that is of the same class or
kind, regardless of the country of exportation, as the
merchandise concerned;
ii) the actual costs and associated costs of transportation
and insurance incurred with respect to international
shipments of the merchandise concerned from the country of
exportation to the United States;
iii) the usual costs and associated costs of transportation
and insurance incurred with respect to shipments of such
merchandise from the place of importation to the place of
delivery in the United States, if such costs are not
included as a general expense under clause (i);
iv) the customs duties and other Federal taxes currently
payable on the merchandise concerned by reason of its
importation, and any Federal excise tax on, or measured
by the value of, such merchandise for which vendors in
the United States are ordinarily liable....
Section 402(d)(3)(A)(i)-(iv). The deduction for profit and general expenses, to be taken as a whole, shall be based on the importer's profits and general expenses, unless these are inconsistent with those reflected in sales in the U.S. of imported merchandise of the same class or kind. Section 402(d)(3)(B)(i); section 152.105(e)(1), CBP Regulations (19 CFR 152.105(e)(1).
We have reviewed the company’s presentation of profit and general administrative expenses as set forth in the operating statements for the Monterrey and Montemorelos facilities. The profit determination is as set forth in the operating statement. The general and administrative expenses per facility consist of other operating expenses; division sales expenses; field sales expenses; and allocation for cost of executive staff. We find these calculations and allocations to be appropriate and consistent with what is required for appraisement under deductive value.
HOLDING:
The company’s presentation and calculation of profit and general and administrative expenses are acceptable for the purposes of appraisement under deductive value.
Please provide a copy of this ruling to counsel for PH. Sixty days from the date of this ruling the office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Monika R. Brenner
Chief, Valuation & Special
Programs Branch