CLA-2 CO:R:C:V 544241 EK

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RE: Request for Ruling Regarding Appraisement of Watches

Dear ---------:

This is in response to your letter of August 30, 1988, requesting a ruling as to the proper appraisement, pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)), of watches sent abroad for repair and returned without the benefit of Item 806.20, Tariff Schedules of the United States. You also inquire as to the proper classification of the watches. We have sent a copy of your letter to our General Classification Branch for an appropriate response.

FACTS:

You indicate that your company (importer) purchases and imports watches assembled in the Philippines by a related company. The watches are then sold in the United States with the benefit of a warranty extended to your customers.

Defective watches, both in and out of warranty, are returned to the importer for repair. You state that the defective watches are then exported to importer's related party in the Philippines for repair and return. The watches are repaired and then sold back to the importer at prices which cover the cost of repairs plus a mark-up.

You state that at the present time, the watches are registered and exported under Customs supervision and are entered into the United States under Item 806.20, TSUS. However, in the future, you will continue to have the watches repaired in the

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Philippines but without export registration and Customs supervision. You are inquiring as to the proper method of appraisement of the watches.

ISSUE:

What is the proper method of appraising watches which are repaired abroad by a related party and subsequently returned to the United States?

LAW AND ANALYSIS:

You are correct in stating that the watches will be appraised pursuant to section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a).

Transaction value, the preferred method of appraisement, is defined as the "price actually paid or payable" when the merchandise is sold for exportation to the United States. See, section 402(b) of the TAA. With respect to the situation you describe, section 152.103(a)(3) of the Customs Regulations [19 CFR 152.103(a)(3)] states the following:

The price actually paid or payable may represent an amount for the assembly of imported merchandise in which the seller has no interest other than as the assembler. The price actually paid or payable in that case will be calculated by the addition of the value of the components and required adjustments to form the basis for the transaction value.

From the information you have provided, we cannot conclusively state that transaction value is inapplicable. The initial decision as to whether transaction value is appropriate in a related party situation is made by the appraising officer. If the appraising officer is satisfied that the parties, albeit related, buy and sell from one another as if they are unrelated, then transaction value may be proper. Furthermore, if the price closely approximates one of the "test values" which are enumerated in section 402(b)(2)(B) of the TAA, then transaction value is appropriate in appraising the merchandise.

Assuming that transaction value is found to be improper in this case, then it is necessary to proceed sequentially through the remaining bases of appraisement provided for under the valuation statute.

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The next basis of appraisement, transaction value of identical or similar merchandise pursuant to section 402(c), appears to be inapplicable. Based upon the facts as presented, it appears as if the repaired watches are neither identical nor similar to the watches which enter the United States brand new.

With respect to deductive and computed value, sections 402(d) and 402(e), respectively, the importer has a choice as to which method is to be utilized. However, here, as you indicate, deductive value is not available since the watches are not "sold" in the United States.

Computed value pursuant to section 402(e) of the TAA appears to be the appropriate method of appraisement in this case. The computed value of imported merchandise is the sum of the cost or value of the materials and the fabrication and other processing, profit and general expenses of the producer, any assist, and packing costs.

Under the circumstances presented, the defective watches acquired by the importer and sent to the related party for repair will be considered assists pursuant to section 402(h) of the TAA. The defective watches are given to the importer by the ultimate consumer in the United States due to a warranty provision extended by the manufacturer. The importer is merely acting as an agent of the ultimate consumer in honoring the warranty provision on behalf of the manufacturer. The value attributed to the defective watches in this case is equal to the costs incurred for transporting the watches to the related party's plant.

For purposes of this response, we are assuming that to the extent applicable, the appraised value of the defective watches will include all statutory elements of computed value. Further, absent more specific information pertaining to the profit and general expenses of the repaired watches, we are unable to conclude that the repaired watches are not of the same class as new watches.

Sincerely,

John Durant, Director,
Commercial Rulings Division