VAL RR:IT:VA 546771 AJS

Area Director
U.S. Customs Service
Hemisphere Center, Routes 1 & 9 South
Room 200
Newark, NJ 07114

RE: Internal Advice 9/97; molds for glassware; assist; presumption that payment is part of the price actually paid or payable; Generra Sportswear Co. v. U.S.; Chrysler Corp. v. U.S.; HRL 543983; C.S.D. 83-3; apportionment of payment; HRL 545264; 19 U.S.C. 1503; classification based on value of merchandise; printing tools and die cut tools.

Dear Director:

This is in reply to internal advice (IA) request 9/97, dated June 4, 1997, submitted on behalf of American Commercial Inc. (Mikasa) concerning payments made to a foreign manufacturer for a mold used in the production of imported merchandise. We regret the delay in responding.

FACTS:

Mikasa is an importer of glassware. One manufacturer of glassware for Mikasa is Inn Crystal (IC) in Austria. On February 9, 1996, Mikasa (i.e., buyer) submitted a purchase order to IC (i.e., seller) for the purchase of 10,000 lead crystal mini-vases. The purchase order included a specified amount for a mold cost. On February 29, 1996, Mikasa submitted a revised purchase order for 12,504 vases. On June 30, 1996, IC submitted an invoice to Mikasa for the mold cost.

Your request states that IC contracted with a third party in Austria for the purchase of the mold in order to meet the production requirements for the subject vases. Your request also states that the mold is designed and made according to IC's specifications and the mold maker is paid by IC. At the time of purchase of the mold, the request states that IC did not receive any money for the mold's purchase from Mikasa. Mikasa stated that the mold cost was agreed to orally with IC. Information in the file states that Mikasa and IC are not related parties and that all transactions between the two are at arm's length.

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At the time of entry for the first shipment, Mikasa asserts that it declared the entire cost of the mold and applied this cost to the particular glassware item produced by the mold. Mikasa asserts that the mold cost is part of the price actually paid or payable for the subject vases. As such, Mikasa claims the inclusion of the entire mold cost may be added to the price actually paid or payable at the time of entry for the first shipment.

For instance, the IC invoice for fully-leaded glass mini-vases, at DM 1.25 each, plus packing, converted at the quarterly rate of 0.648803 yields a price of .90 cents for each vase. Mikasa asserts such vases are classified in the provision for other glassware, of lead crystal, valued not over $1 each, in subheading 7013.91.10 of the Harmonized Tariff Schedule of the United States (HTSUS), and are dutiable at the rate of 20% ad valorem. As stated previously, a separate IC invoice billed Mikasa for the mold cost required to make the subject vases. An "add sheet" specifying the same mold cost was also provided. Mikasa states that the addition of the mold cost results in a unit value of more than $3.00 for each vase. Mikasa indicates that fully-leaded glass vases valued over $3 each are classified in subheading 7013.91.30 of the HTSUS at the lower duty rate of 10.5% ad valorem. Mikasa asserts that Customs will not permit this addition to be made at the time of the first shipment, insisting that the entry be made at the higher 20% rate under subheading 7013.91.10, HTSUS. Mikasa also asserts that Customs subsequently requires Mikasa to make a voluntary tender of duties for the mold costs at the 20% rate of duty after the entry has been made. Mikasa argues that if the resulting increases in the unit price of the vases leads to a 10.5% duty rate under subheading 7013.91.30, HTSUS, then Customs should permit entry at the lower duty rate. Mikasa notes that it is understood that subsequent shipments of the vases in that case will be entered under subheading 7013.91.10, HTSUS, at the higher 20% duty rate inasmuch as the entire mold cost will have been previously apportioned over the first shipment.

Mikasa also raises the issue of the costs for printing tools and die cut tools. The above add sheet also lists costs for printing tools and die cut tools. Mikasa states that the tools are used in the printing of the packaging for the vases. The tools are purchased by Mikasa from a vendor in Austria and provided free of charge to IC. Mikasa asserts that such tools are assists. Mikasa additionally asserts that it should be permitted to allocate the entire cost of the tools over the number of vases in the first importation. As with the mold cost, Mikasa argues that if the unit price of the subject vases increases to the extent that the tariff rate decreases from 20% to 10.5% such result should be permissible.

ISSUE:

Whether payment for the mold cost is part of the price actually paid or payable for the imported merchandise pursuant to 19 U.S.C. 1401a(b)(4). In addition, what is the proper method of apportionment of this payment.

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Whether the subject tools are assists within the meaning of section 1401a(h)(1)(A) whose value must be added to the price actually paid or payable. In addition, what is the proper method of apportionment of the value of the tools.

LAW AND ANALYSIS:

Merchandise imported into the U.S. 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 primary method of appraisement under the TAA is transaction value, defined in section 1401a(b)(1), as the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts for certain enumerated items.

The definition of an assist (in pertinent part) as set forth in section 1401a(h)(1)(A) is:

. . . any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise: . . .

(ii) Tools, dies, molds and similar items used in the production of the imported merchandise.

The term "price actually paid or payable" means 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)(A).

There is a rebuttable presumption that all payments made by a buyer to a seller, or a party related to a seller, are part of the price actually paid or payable. See Headquarters Ruling Letter (HRL) 545663 (July 14, 1995). This position is based on the meaning of the term "price actually paid or payable" as addressed in Generra Sportswear Co. v. United States, 8 CAFC 132, 905 F.2d 377 (1990). In Generra, the court considered whether quota charges paid to the seller on behalf of the buyer were part of the price actually paid or payable for the imported goods. In reversing the decision of the lower court, the appellate court held that the term "total payment" is all-inclusive and that "as long as the quota payment was made to the seller in exchange for merchandise sold for export to the United States, the payment properly may be included in transaction value, even if the payment represents something other than the per se value of the goods." The court also explained that it did not intend that Customs engage in extensive fact- finding to determine whether separate charges, all resulting in payments to the seller in connection with the purchase of imported merchandise, were for the merchandise or something else.

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In this case, Mikasa (i.e., the buyer) will pay IC (i.e., the seller) for the cost of the mold. Since payment for the mold is made to the seller, there is a rebuttable presumption that the payment is part of the price actually paid or payable for the imported merchandise. Both you and Mikasa agree that the mold payment is part of the price actually paid or payable. See also HRL 543983 (December 2, 1987), HRL 542812 (July 19, 1982).

The IA request also raises the issue of the proper allocation of the mold payment to the value of the imported merchandise. Mikasa's position is that this payment may be allocated to the first shipment of the subject merchandise. Your position is that the value of this payment should be prorated over the total number of items which will be produced (or over the total number of items which will be purchased). You also assert that the full value of this payment should not be apportioned on a single shipment as is an option when an item is an assist. See 19 CFR 152.103(e).

The Court of International Trade (CIT) addressed this issue in Chrysler Corporation v. U.S., 17 CIT 1049 (1993). In that case, the court ruled that although certain shortfall and special application fees which the buyer paid to the seller were not a component of the price actually paid or payable, tooling expenses incurred for the production of the merchandise were part of the price actually paid or payable for the imported merchandise. The court found that payment for the tooling expenses could be subject to some form of allocation. The court further stated that what must be determined is the price actually paid or payable for the imported merchandise. The court emphasized that this price is the total payment which may be direct or indirect, and that the price may be the result of increases. The court concluded that what must be determined is which portion of the payments were directly or indirectly part of the price paid for the merchandise. The court apportioned the tooling expenses over the value of the total number of items intended to be produced and not the total number of items imported. The court stated that it would be "unrealistic and contrary to the facts of business life" to apportion the payments any other way. The rationale for this conclusion was that the payment was intended to affect the total number of items purchased and not merely those imported. This conclusion was based on purchase orders and contracts between the parties as well as testimony which indicated that the parties contracted to produce a minimum number of items during a specified model period.

Subsequent to Chrysler, Customs has found apportionment acceptable if it is reasonable and in accordance with generally accepted accounting principles (GAAP). See HRL 545264 (August 12, 1994), HRL 544694 (February 14, 1995), and HRL 546430 (January 6, 1997).

As stated above, the court in Chrysler apportioned the additional payment over the number of items intended to be produced based on the intent of the parties and the evidence presented. In this case, the two purchase orders submitted appear to indicate that the number of items the mold payment was intended to affect is 12,504 vases. Therefore, the mold payment

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should be apportioned over the 12,504 vases. However, if there is be additional purchase orders or agreements which indicate that additional vases are also involved, apportionment should be adjusted accordingly. Based on Chrysler, apportionment should be in this manner unless evidence to the contrary is submitted. The mold payment should not be apportioned to a single shipment as requested by Mikasa, because no evidence of the parties intention to apportion to a single shipment was presented.

Mikasa also raises the issue of tools which are purchased by Mikasa and provided free of charge to IC. These tools would appear to satisfy the statutory definition of an assist within section 1401a(h)(1)(A) in that they are tools supplied directly and free of charge by the buyer of the imported vases for use in connection with the production of these vases. As assists, the tools would be subject to a manner of apportionment specified in 19 CFR 152.103(e). In this case, Mikasa choose to apportion the value of the assist over the first shipment pursuant to section 152.103(e)(1)(i).

Mikasa notes that apportionment raises the issue of whether the method of apportionment could affect the value of merchandise for classification purposes. As stated previously, class-ification of the subject merchandise within the applicable subheadings is dependent on the value of each item. For example, subheading 7013.91.10, HTSUS, provides for glassware "valued not over $1 each". Specifically, your request is concerned as to whether a method of apportionment which changes the value of merchandise also could change its classification. 19 U.S.C. 1503 provides that the basis for the assessment of duties on imported merchandise subject to ad valorem rates of duty or rates based upon or regulated in any manner by the value of merchandise shall be the appraised value determined upon liquidation in accordance with 19 U.S.C. 1500. Section 1500 requires Customs to fix the final appraisement of merchandise by ascertaining or estimating the value of the merchandise under 19 U.S.C. 1401a. Thus, the value of merchandise determined by section 1401a can affect its classification.

HOLDING:

The payment for the subject mold is part of the price actually paid or payable for the imported merchandise within the meaning of 19 U.S.C. 1401a(b)(4). This payment should be apportioned over the number of vases intended to be produced based on the analysis in Chrysler Corporation v. U.S.

The subject tools are assists within the meaning of 19 U.S.C. 1401a(h)(1)(A) whose value must be added to the price actually paid or payable for the imported merchandise pursuant to section 1401a(b)(1)(C). The value of the tooling may be apportioned over the first shipment pursuant to 19 CFR 152.103(e).

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This decision should be mailed by your office to the internal advice requestor no later than 60 days from the date of this letter. On that date the Office of Regulation and Regulations will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Acting Director,

International Trade Compliance Division