VAL CO:R:C:V 545161 ILK
Robert F. Seely, Esq.
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, IL 60661-3693
RE: Allocation of profits and general expenses and packing costs
under computed value
Dear Mr. Seely:
This is in response to your ruling request dated November
13, 1992, on behalf of your client Baxter Healthcare Corporation
(hereinafter referred to as the "importer"), a U.S. corporation.
This response follows a meeting held on February 26, 1993 between
you and members of the Value and Marking Branch. The concerned
field office is aware that we are responding directly to you on
this matter. We regret the delay in responding.
FACTS:
The facts involve the importer's Convertors/Custom Sterile
Division's transactions with the importer's four maquiladora
plants in Chihuahua, Mexico. These plants are Convertors de
Mexico, S.A. de C.V., Cirmex de Chihuahua, S.A. de C.V., Cirpro
de Delicias, S.A. de C.V. and QuiroProductos de Cuauhtemoc, S.A.
de C.V. (hereinafter collectively referred to as the "seller").
The imported products consist of a variety of articles used in
hospitals, clinics, and laboratories, including drapes, shoe
covers, headwear, gowns, and other articles for use in
medical/surgical procedures. Paper, textile and plastic roll
stock for many of the finished products is cut and formed in the
U.S. and then shipped to the seller for assembly. Other articles
are produced in the U.S. and are shipped to Mexico for "pack-out"
only.
The products imported into the U.S. from Mexico are entered
under both subheading 9801.00.10 Harmonized Tariff Schedule of
the United States (HTSUS), as American goods returned (packed
abroad), and subheading 9802.00.80 HTSUS, as articles assembled
abroad of U.S. fabricated components. Articles entered under
9801.00.10 HTSUS receive a "free" rate of duty, and articles
entered under 9802.00.80 HTSUS are subject to duty on the full
value of the imported article, at the applicable rate, less the
value of the fabricated U.S. components. For example, a hospital
gown assembled in Mexico and entered under 9802.00.80 HTSUS may
be packaged in plastic with a towel produced in the U.S. and
entered under 9801.00.10 HTSUS.
For the purpose of this request we are asked to assume that
the imported merchandise is appraised on the basis of computed
value under 402(e) of the Tariff Act of 1930, as amended by the
Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a), and that the
importer properly reports to Customs all data elements of
computed value. In reporting the value of the products entered
from Mexico, the importer allocates the actual total cost of
operations of the seller to each unit of product that is entered.
The allocation is based on the production costs and profit
reported in the financial statements of the seller, and on the
specific number of hours required to complete each packaging or
assembly operation.
Customs field officers have determined that all expenses and
profits, including packing costs should be allocated to the
9802.00.80 HTSUS merchandise. You request a ruling that total
processing costs, general expenses and profit be allocated to the
various independently classifiable products packed and assembled
by the seller.
ISSUE:
Whether the profit and general expenses and packing costs
attributable to the packing of imported merchandise entered under
9801.00.10 HTSUS should be included in the appraised value of
merchandise entered under 9802.00.80 HTSUS.
LAW AND ANALYSIS:
This ruling assumes that the imported merchandise will be
appraised on the basis of computed value, pursuant to 402(e) of
the Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (TAA; 19 U.S.C. 1401a).
Subsection 9801.00.10 HTSUS does not address how the amount
for profit and general expenses and packing costs are to be
treated. A similar issue is addressed by subsection 9802.00.20
through 9802.00.60 HTSUS with respect to merchandise returned to
the United States after undergoing processing, repairs or
alterations outside of the United States. With respect to the
returned merchandise, a duty is imposed only upon the value of
the processing, repairs or alterations performed outside of the
U.S. No similar assessment of duty upon the packaging undergone
by U.S. goods entered under 9801.00.10 was provided for by the
HTSUS.
If the importer in this case imported only 9801.00.10 HTSUS
merchandise, there would be no other merchandise to which the
amount for profit and general expenses and packing costs could be
attributed. There is no authority under which duty could be
assessed upon the value of the profit and general expenses and
packing costs incurred, with respect to merchandise entered under
9801.00.10. Therefore, in this case, where 9801.00.10 HTSUS
merchandise is entered with 9802.00.80 HTSUS merchandise, the
profit and general expenses and packing costs attributable to the
packing of the 9801.00.10 merchandise should be allocated to that
merchandise and not included in the appraised value of the
9802.00.80 merchandise, provided the importer's cost submission
conforms to generally accepted accounting principles. This is
consistent with Headquarters Ruling Letter ("HRL") 542198 dated
December 23, 1980. In HRL 542198, the district was directed to
accept the cost allocation submitted by the manufacturer,
provided the submission conforms to generally accepted accounting
principles, noting TAA 402(g)(3).
HOLDING:
The amount for profit and general expenses and packing costs
attributable to the imported merchandise entered under subheading
9801.00.10 HTSUS, should be allocated to that merchandise, and
should not be included in the appraised value of merchandise
entered under 9802.00.80.
Sincerely,
John Durant, Director
Commercial Rulings Division