CLA-2 CO:R:CV:V 543891DH
District Director of Customs
El Paso, Texas
Re: Application for Further Review of Protest
Nos. 2403-4-000002 and 2403-4-000003
Dear Sir:
The above referenced protests and applications for further
review concern the applicability of a government rebate (CEDIS),
inland freight incurred in shipping the merchandise from the
exporter`s plant to the Mexican border and insurance premiums in
the computation of computed value.
FACTS:
The merchandise under consideration has been imported by a
United States corporation from its Mexican subsidiary producer.
This merchandise has been appraised on the basis of computed
value.
CEDIS (certificado de devolucion de impuestos) is a refund of
money authorized to Mexican exporting companies that export
products made in Mexico which contain a certain percentage of
Mexican raw materials.
CEDIS, when authorized, can be applied toward credit for
payment of any federally imposed taxes or the funds can be
obtained from the Bank of Mexico upon payment of a 10 percent
commission. It is the view of the district that the CEDIS
amounts are an element in the profit computation under Section
402(e)(1)(B) of the Tariff Act or 1930, as amended by the Trade
Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(e)(1)(B)), since the
Mexican corporation includes the CEDIS amounts in its sales price
to the United States company and carried the payment on its books
as "miscellaneous profit and loss". It is further contended that
the cost submission submitted by the United States parent
included the CEDIS in its profit, and then, the foreign operating
expenses were reduced by this same amount. Finally, it is the
contention of the exporter that the issuance of the certificates
is dependent, not upon sales for export to the United States, but
rather upon the actual fact of export. While information has not
been submitted to Headquarters which establishes that these funds
have been paid or transferred, verification of this information
does exist in the Regulatory Audit Report.
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The prepaid costs and expenses incurred in the handling of
the product from the time the product was packed on the factory
dock ready for shipment until the time the product reached the
United States border were included in the computation of the
computed value of the merchandise. This figure was reported in
the cost submission to Customs under the heading of "Material
Components Cost" and in the financial statements of the exporter
as a "cost of production".
Finally, the insurance premiums to cover the risk of loss
during the transportation of the finished tomato paste were
prepaid by the exporter. It is the opinion of the district that
these payments are dutiable as a cost of production since the
payments were carried on the exporter`s financial statements as
such.
ISSUES:
Is a tax rebate calculated on a percentage of Mexican
integral costs which is given to Mexican firms who export
products made in Mexico containing a certain percentage of
Mexican raw materials part of computed value?
Are prepaid transportation costs and expenses directly
related to transporting the finished product from the loading
dock of the Mexican plant to the U. S. border and carried on the
books of the producer part of computed value?
Are prepaid insurance premiums paid to cover the risk of
transportation of the finished product from the plant to the
border and carried on the books of the producer part of computed
value?
LAW AND ANALYSIS:
Computed value is defined in section 402(e) of the TAA (19
U.S.C. 1401a(e)) as the sum of-
(A) the cost or value of the materials and
fabrication and other processing of any kind
employed in the production of the imported
merchandise;
(B) an amount for profit and general expenses
equal to that usually reflected in sales of
merchandise of the same class or kind as the
imported merchandise that are made by the
producers in the country of exportation for export
to the United States;
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(C) any assist, if its value is not included under
subparagraph (A) or (B); and
(D) the packing costs.
Section 402(e) continues:
(A) the cost or value of materials under paragraph
(1)(A) shall not include the amount of any
internal tax imposed by the country of exportation
that is directly applicable to the materials or
their disposition if the tax is remitted or
refunded upon the exportation of the merchandise
in the production of which the materials were
used; and
(B) the amount for profit and general expenses
under paragraph(1)(B) shall be based upon the
producer`s profits and expenses, unless the
producer`s profits and expenses are inconsistent
with those usually reflected in sales of
merchandise of the same class or kind as the
imported merchandise that are made by producers in
the country of exportation for export to the
United States, in which case the amount under
paragraph (1)(B) shall be based on the usual
profit and general expenses of such producers in
such sales, as determined from sufficient
information.
The CEDIS payments fall within the provisions of
402(e)(2)(A), since the tax is refunded upon the exportation of
the merchandise and the tax is directly applicable to the
materials. Accordingly, under subparagraph 402(e)(2)(A) the
value of the tax is not to be included in the computed value as
part of the cost or value of the materials; however, it is to be
included as part of the profit and general expenses under
subparagraph 402(e)(2)(B), because it is treated in such a manner
by the producer on its books. In the absence of information
showing that these figures are inconsistent with what is usual,
the producers figures will be used to determine profit and
general expenses.
The second issue concerns prepaid transportation costs
incurred by the exporter for transporting the finished
merchandise from the exporters dock to the Mexican border.
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The exporter has contended that the transportation costs and
the insurance costs should not be dutiable since the
transportation of the finished merchandise occurred after the
merchandise was packed ready for exportation to the United
States.
The district has contended that the prepaid cost of
transportation is dutiable as a cost or value of materials under
section 402(e)(A) since the costs were included in the exporter`s
financial statements as "a cost of production" and the costs were
recorded on the Customs submission as a "Material Components
Cost".
While expenses that occur after production has been completed
may not always be considered as part of the cost of materials or
other processing employed in production, they have been treated
as production costs on the company`s records. We have no
indication that such treatment is inconsistent with generally
accepted accounting principles.
It is true that a provision pertaining to transportation
costs has not been specifically enumerated under computed value.
Guidance however, with regard to these issues has been provided
in the Statement of Administrative Action. The Statement of
Administrative Action provides:
The cost or value of the materials and the
fabrication and other processing of any kind
employed in the production of the imported
merchandise will be determined on the basis of
information supplied by, or on behalf of, the
producer and will be based upon the commercial
accounts of the producer, if such accounts are
consistent with the generally accepted accounting
principles applied in the country where the goods
are produced.
There has not been any evidence submitted to establish that
the method of accounting applied by the exporter is contrary to
the generally accepted accounting principles of Mexico.
Therefore, the district was correct in relying upon the
producer`s records and holding the inland freight and insurance
expenses to be part of computed value.
HOLDING:
In view of the foregoing, you should grant that portion of
the protest which concerns cost of production with respect to the
CEDIS payments; however, the protest should be denied with
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respect to all other issues. A copy of this decision should be
attached to the Form 19, Notice of Action, to be sent to the
protestant.
Sincerely,
John Durant
Acting Director, Commercial
Rulings Division