RR:IT:VA 546479 RSD
Mr. Frank X. Kelly
Vice President, Customs and International Trade
Liz Claiborne, Inc.
1 Claiborne Avenue
North Bergen, New Jersey 07047
RE: Dutiability of charges paid for Vacuum Packing imported
garments paid to a party other than the seller
Dear Mr. Kelly:
This is in response to your letter dated August 16, 1996,
requesting a prospective ruling regarding the dutiability of
charges that your company, Liz Claiborne, Inc., is considering
paying for vacuum packing imported garments. In your letter you
explain that Liz Claiborne, Inc. has not yet begun using the
overseas vacuum packer's services.
FACTS:
Liz Claiborne, Inc. is an importer of garments. It is
contemplating using the services of a foreign "Vac Pak facility"
to perform vacuum packing operations for garments purchased from
an unrelated vendor. It is our understanding that the "vac pak
facility" will not be related to the seller of the imported
garments. You have indicated in a telephone conversation, with a
member of our staff, that the vacuum packing of the garments
abroad will eliminate the need for services that are currently
being performed in the United States to get the merchandise ready
for retail sale, such as pressing. It is intended that vacuum
packing garments abroad will save Liz Claiborne money.
You state that all merchandise is to be collected on
hangers. The merchandise can be hung on mobile rails for loading
into the collection vehicle or hung on hanging garment equipment
fixed in the collection vehicle. The collection vehicle can be
either an ocean container or a truck.
If the merchandise has been collected by truck and drayed to
the vac pak terminal, then the products must be unloaded at the
terminal and loaded into an ocean container which is permanently
placed at the vac pak company's facility. The garments can be
loaded into this
container either on mobile rails or hung on hanging garment
equipment installed in the container. This container is then
opened and the merchandise removed into the vac pak terminal
garment handling and processing area and progressed through the
vacuum packing procedures described below.
If the merchandise has been collected in an ocean container,
then this container is sealed and drayed into the vac pak
terminal. This container is then opened at the vac pak company's
terminal garment handling facility and processing area and
progressed through the vacuum packing procedures. (You point out
that when an ocean container is used to collect the merchandise,
it is not necessary to perform the same operation as when the
merchandise is collected by truck.)
You describe the vacuum packing operations as follows:
. Garments are made ready for a preconditioning process by
raising the poly bag up to the hanger.
. Garments are hung in a chamber that extracts the moisture
from them and the poly bags are lowered to their original
position.
. Garments are then inserted in a special multi-layer poly
bags. Excess air is extracted and the bag is sealed. The
garments are totally isolated from the humid atmosphere.
. The vac pak bags are then packed in cartons or on a wooden
pallet without cartons and placed in the vessel container.
. Upon receipt in the U.S. the bags are opened and the
garments are removed and hung on trolleys for distribution.
ISSUE:
Whether the vacuum packing charges paid to a party other
than the seller are to be added to the "price actually paid or
payable" for the imported merchandise as packing costs?
LAW AND 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 (the TAA; 19 U.S.C. 1401a).
The preferred method of appraisement under the TAA 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, including the packing costs. 19 U.S.C.
1401a(b)(1). The term price actually paid or payable is defined
in TAA 402(b)(4)(A) as:
...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.
The charges paid for the vacuum packing services described
above are not part of the price actually paid or payable because
they are not paid to or for the benefit of the seller of the
imported merchandise. Accordingly, we must determine whether
they would be an addition to price actually paid or payable as
packing costs.
The term packing costs is defined in TAA 402(h)(3) as the
cost of all containers and coverings of whatever nature and of
packing, whether for labor or materials, used in placing
merchandise in condition, packed ready for shipment to the United
States.
In Headquarters Ruling Letter (HRL) 542834 dated July 30,
1982 (TAA No. 49), we noted that the phrase "packed ready for
shipment to the United States" was analogous to the merchandise
being "in seaworthy condition." Therefore, in that case services
performed which were incident to placing the merchandise packed
ready for shipment to the United States were held to be dutiable
as "packing costs." The costs incurred subsequent to the
merchandise attaining that status were held to be not dutiable.
In HRL 542897, dated August 16, 1982, Customs ruled that
where merchandise was packed in ocean containers, on hangers, on
racks, in condition ready for shipment to the United States,
charges for a vacuum packaging process performed subsequently
would not be part of transaction value, provided the costs of
packing the merchandise for shipment to the United States and
costs for the vacuum packaging were noted separately and
distinguished on the invoice submitted to Customs at the time of
entry. See also HRL 542957 dated November 26, 1982.
In HRL 543026 dated March 17, 1983, the manufacturer placed
the finished garments on hanging racks in an ocean-going
container and sealed it. The containerized merchandise was
drayed to the vacuum packer's facility where it was subjected to
a vacuum packing process which reduced the size of the garments.
The vacuum-packed garments were then placed in cardboard boxes
and drayed to a freight consolidator for subsequent shipment to
the United States. We ruled that under the circumstances
described, the vacuum packing would not be part of the value
because it takes place after the merchandise has been placed in
condition, packed ready for shipment to the United States.
Based on your description, we will assume that the vacuum
charges will be performed after the merchandise has been packed
in a manner which would meet industry standards for international
transportation of the merchandise in question. The merchandise
would be hung on racks, put in poly bags, and placed in a
container before the vacuum packing services are performed. In
accordance with our previous rulings regarding vacuum packing,
cited above, we conclude that such costs would not be part of
transaction value since the imported garments are in a seaworthy
condition for shipment to the United States prior to vacuum
packing.
HOLDING:
In view of the foregoing, it is our conclusion that the
charges that the importer incurs to a party unrelated to the
seller for vacuum packing the imported garments would not be
packing costs within the meaning of section 402(h)(3) of the TAA
and would not be part of the transaction value of the imported
merchandise.
Sincerely,
Acting Director
International Trade Compliance Division