VAL CO:R:C:V 544818 CRS
District Director
U.S. Customs Service
423 Canal Street
New Orleans, LA 70130
RE: Dutiable value of electrical generator; total zone value; FTZs; privileged status; nonprivileged status; transaction value; 19 CFR § 146.65(b); 19 U.S.C. § 1401a(b)(3)(A).
Dear Sir:
This is in reply to your memorandum of September 23, 1991, under cover of which you forwarded a request for internal advice submitted on behalf of [Company A] by [************************], in a letter dated August 16, 1991. Additional submissions were made by [*********************] in letters dated July 14, 1992, and January 19, 1993. Meetings with counsel were held at Headquarters with members of my staff on February 6, 1992, and November 20, 1992.
Counsel for [Company A] has advised that its submissions relating to this matter contain confidential business information and has requested that such information be exempt from disclosure in accordance with section 177.2(b)(7), Customs Regulations (19 CFR § 177.2(b)(7)). Counsel's request has been granted pursuant to 19 CFR § 177.8(a)(3).
FACTS:
The subject of the instant internal advice request is an electric generator of a kind used in the commercial production of electrical power. The generator in question was imported in partially disassembled form during the period 1980-1983, along with certain other merchandise, for use in nuclear power plants that [*********************] planned to build at sites in [***********] and [****************]. These power plants were never constructed, and the parts and assemblies of the generator at issue were placed in bonded warehouses in [*********] and [*********] when the projects were cancelled by [**********].
In [********], the Foreign-Trade Zones Board (the "Board") approved the [*********] and [**********] sites for designation as foreign-trade subzones. The subzones were established to store merchandise that had been placed in bonded warehouses in order to defer duty, or on which duty had been paid but on which drawback claims were to be filed. All of the merchandise, including the generator, was placed in zone-restricted status. Subsequently, [*******] sold all of the merchandise placed in the subzones to [Company B], whose affiliate, [Company C] became the operator of the subzones in [***********]. On March 6, 1990, [Company B] sold the generator in question to [Company A] for [****].
On March 14, 1990, [Company A] entered into a contract with [Company D] to upgrade its power generation capacity. Under the contract, [Company A] agreed to install an electric generator at the [Company D] power plant in [*************] as well as to provide any technical assistance, labor, materials and other resources required in order to render the generator operational. The total price specified in the contract for the generator, parts and attendant services to be provided by [Company A] was [****].
On [*************] the Board authorized the withdrawal for domestic entry of the merchandise in zone restricted status at the [***********] and[**********] subzones, and in addition, provided that the merchandise was to be placed in nonprivileged foreign status. Order No. [**********************************]. On [**************] [Company A] filed a consumption entry on the generator in question at the port of New Orleans.
Counsel for [Company A] contends that the generator should be appraised on the basis of its total zone value as provided for in § 146.65(b)(1), Customs Regulations (19 CFR § 146.65(b)(1)), and that the zone seller for valuation purposes should be [Company B] rather than [Company A] Whether the zone seller is determined to be [Company B] or [Company A], however, counsel maintains that the dutiable value of the instant generator is [******].
ISSUE:
The issue presented is the correct basis of appraisement of merchandise admitted to a foreign-trade zone where there was no price actually paid or payable in the transaction that caused the merchandise to be admitted to the zone.
LAW AND ANALYSIS:
Pursuant to section 146.65(b)(2), Customs Regulations (19 CFR § 146.65(b)(2)), the dutiable value of nonprivileged foreign merchandise in a FTZ is the price actually paid or payable for the merchandise in the transaction that caused the merchandise to be admitted to the zone, less certain shipping costs, and plus the statutory additions provided for in section 402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. § 1401a(b)(1)).
However, in the instant case, it was the designation of the [***********] and [********] sites as foreign-trade subzones that caused the generator to be admitted to the zone. Consequently, there is no price actually paid or payable on which to base the dutiable value of the generator at issue. In such a case, the Regulations provide:
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 may be obtained by excluding from the zone value any included zone costs of processing or fabrication, general expenses and profit and the international shipment and insurance costs and U.S. inland freight costs related to the merchandise transferred from the zone.
Accordingly, the dutiable value of the merchandise in question is based on its zone value.
The Regulations define "total zone value" as "the price actually paid or payable to the zone seller in the transaction that caused the merchandise to be transferred from the zone," and state that it is to be determined in accordance with the principles of section 402 of the Tariff Act of 1930, as amended (19 U.S.C. § 1401a). 19 CFR § 146.65(b)(1). Counsel maintains that the transaction that caused the merchandise in question to be transferred from the zone was the sale of the generator from [Company B] to [Company A] rather than the services contract between [Company A] and [Company D].
The term "transfer" is defined by the Regulations as taking "merchandise with zone status from a zone for consumption, transportation, exportation, warehousing, cartage or lighterage, vessel supplies and equipment, admission to another zone and like purposes." 19 CFR § 146.1(b)(18). [Company A] acquired the generator from [Company B] during the course of its negotiations with [Company D] to upgrade the capacity of the [*******] power plant. It was not until after these negotiations resulted in the contract to install a generator at the [************] site on a turnkey basis that the generator was entered into the Customs territory for consumption.
In contrast, the sale from [Company B] to [Company A] did not cause the generator to be transferred, i.e., taken from the zone for consumption. The sale between [Company B] and [Company A] occurred on March 6, 1990, after which time the generator continued to remain in the zone. The March 6th sale was merely an intervening event between the admission of the generator to the zone and its eventual transfer therefrom. Accordingly, it was not until the contract between [Company A] and [Company D] on March 14, 1990, that there was a transaction, for the purposes of determining total zone value, that caused the generator to be transferred from the zone. Having identified the transaction for the purposes of 19 CFR § 146.65(b) that caused the transfer from the zone, the remaining question is to determine the total zone value of the generator.
Pursuant to 19 CFR § 146.65(b)(1), the total zone value is the price actually paid or payable to the zone seller, determined in accordance with the valuation principles of 19 U.S.C. § 1401a. The preferred method of appraisement under 19 U.S.C. § 1401a is transaction value, defined as the price actually paid or payable for the merchandise when sold for exportation to the United States, plus certain additions not here applicable. 19 U.S.C. § 1401a(b)(1). The phrase "when sold for exportation to the United States" refers in this instance to the transaction which, in accordance with the FTZ Regulations (19 CFR § 146.65(b)), caused the generator in question to be transferred from the zone. That transaction, as stated above, was the contract between [Company A] and [Company D].
The term "price actually paid or payable" is "the total payment (whether direct or indirect...) made, or to be made, for imported merchandise, by the buyer to, or for the benefit of, the seller." 19 U.S.C. § 1401a(b)(4). The [Company D - Company A] contract specified a total price of [****] for all the goods and services to be provided by [Company A]. However, the transaction value of imported merchandise does not include any reasonable cost or charge incurred for the construction, erection, assembly or maintenance of, or the technical assistance provided with respect to the merchandise after its importation into the United States, or any transportation costs incurred after importation, provided such costs or charges are separately identifiable from the price actually paid or payable. 19 U.S.C. § 1401a(b)(3)(A).
In its original submission of July 14, 1992, counsel for [Company A] suggested that as an alternative to valuation based on the [Company B - Company A] sale, the generator be appraised on the basis of the [Company A - Company D] sale. In this regard counsel stated:
[The]...total price of [*******], necessarily included amounts for services to be performed by [Company A] and various subcontractors, as necessary to recondition the generator and to integrate it into [Company D's] production facility. These services could not be part of dutiable value, because they were to be performed subsequent to the entry of the merchandise and its removal from the subzone and are separate from that merchandise.
The difference between the transaction price for the sale of the generator by [Company B] to [Company A] and the total value of the [Company A - Company D] contract is [******] the difference between [*****] and [*******] (Company A's acquisition cost for the generator)....To the extent that this difference is not attributable to the cost of merchandise other than the generator from [********] and the cost of providing services, it is attributable to U.S. inland freight, general expenses and profit....
Counsel's statement regarding the amount of the contract price attributable to the generator, as distinct from the value of the services performed by [Company A] to render the generator operational, has been confirmed to the satisfaction of this office by, inter alia, documentation relating to the [Company B -Company A] sale. Since the costs and charges of reconditioning the generator, as well as those associated with transporting it to, and integrating it into, the [**********] facility are separately identifiable, the total zone value of the generator can be determined in accordance with the valuation principles of 19 U.S.C. § 1401a. 19 CFR § 146.65(b).
Accordingly, the zone value is the price actually paid or payable in the transaction that caused the generator to be transferred from the [*******] and [*********] subzones, i.e., [*******]. Pursuant to 19 CFR § 146.65(b)(2), the dutiable value of the generator is the zone value, less any included zone costs of processing or fabrication, general expenses and profit and any costs related to international shipment and insurance costs, and U.S. inland freight costs. In the instant case there are no adjustments to be made to the zone value.
HOLDING:
The dutiable value of the generator in question, pursuant to § 146.65(b), Customs Regulations, is [*****].
Sincerely,
John Durant, Director
Commercial Rulings Division