CLA-2 RR:CTF:VS 563369 KSG
Deringer Logistics Consulting Group
1 Lincoln Blvd, Suite 225
Rouses Point, NY 12979
Re: Consideration of whether a sketch and pattern are an assist
Dear Ms. DiBernardo:
This is in response to your letter dated September 6, 2005, requesting a binding ruling on behalf of Spa Uniforms, Inc., as to whether certain artwork or design work constitutes an assist pursuant to 19 U.S.C. 1401a(h)(1)(A). You also asked if transaction value could be used as a basis of appraisal in this case. We do not have sufficient facts with regard to the transaction value issue and are limiting this ruling to the issue of assists.
Spa Uniforms, located in Vancouver, B.C., intends to purchase various spa uniforms, t-shirts, pants and tops and import them into the U.S. The textiles would be manufactured in China by an unrelated company. The goods are destined for exportation to the U.S.
Spa Uniforms will supply designs or patterns used to produce the apparel articles to the Chinese manufacturer at no charge. Spa Uniforms provides a preliminary sketch, which is drawn in Canada, to an unrelated company in Canada that produces the pattern. You describe the sketch provided by Spa Uniforms as a hand drawn rough sketch, which gives the pattern manufacturer a rough idea of the apparel product.
The Canadian pattern manufacturer takes the rough sketch and produces the detailed pattern and does a mock up of the article for Spa Uniform’s approval. Based on the facts presented in this case, the pattern maker is related to the Chinese manufacturer. The pattern maker either supplies the pattern to the Chinese manufacturer without a separate charge to Spa Uniforms or the pattern maker issues an invoice for a charge of less than $300 to Spa Uniforms for the pattern production and/or mock up. You state that when the pattern maker does not charge Spa Uniforms for the pattern, the cost of the pattern is included in the cost of the uniforms. The apparel will be produced in China based on the pattern provided by Spa Uniforms. You state that the Chinese manufacturer cannot produce the garments without the patterns in this case.
You also state that fabric may be provided to the Chinese manufacturer for free or at reduced cost.
Whether a sketch of a textile item and a pattern provided for the purpose of the production of a pattern constitute assists pursuant to 19 U.S.C. 1401a(h)(1)(A).
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. 1401a. Transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for the enumerated statutory additions. 19 U.S.C. 1401a(b). In order for imported merchandise to be appraised under the transaction value method it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States.
One of the enumerated statutory additions is an “assist.” An “assist” is defined in 19 U.S.C. 1401a(h)(1) as follows:
(1)(A) The term “assist” means 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:
(i) Materials, components, parts, and similar items incorporated in the imported merchandise.
(ii) Tools, dies, molds, and similar items used in the production of the imported merchandise.
(iii) Merchandise consumed in the production of the imported merchandise.
(iv) Engineering, development, artwork, design work, and plans and sketches that are undertaken elsewhere than in the United States and are necessary for the production of the imported merchandise.
No service or work to which subparagraph (A)(iv) applies shall be treated as an assist for purposes of this section if such service or work—
is performed by an individual who is domiciled within the United States;
is performed by that individual while he is acting as an employee or agent of the buyer of the imported merchandise; and
is incidental to other engineering, development, artwork, design work, or plans or sketches that are undertaken within the United States.
(C ) For purposes of this section, the following apply in determining the value of assists described in subparagraph (A)(iv):
The value of an assist that is available in the public domain is the cost of obtaining copies of the assist.
If the production of an assist occurred in the United States and one or more foreign countries, the value of the assist is the value thereof that is added outside the United States.
The regulations applicable to assists are set forth at 19 CFR 152.103(d) and (e).
We first note that fabric provided to the Chinese manufacturer free of charge by Spa Uniforms would be considered an assist in accordance with 19 U.S.C. 1401a(h)(1)(A)(i) as materials, components, parts and similar items incorporated in the imported merchandise and supplied directly or indirectly, free of charge or at reduced cost by the buyer to the manufacturer. Pursuant to 19 CFR 152.103(d)(1), if an assist consists of materials, components, parts, or similar items incorporated in the imported merchandise, or items consumed in the production of the imported merchandise, acquired by the buyer from an unrelated seller, the value of the assist is the cost of its acquisition.
The type of assist at issue in this case is “engineering, development, artwork, design work and plans and sketches that are undertaken elsewhere than in the United States and are necessary for the production of the imported merchandise.”
CBP addressed the issue of whether certain patterns, designs, pattern tracings, photographs and prototype garments furnished to a foreign manufacturer to produce skiwear and other sports apparel were considered assists in C.S.D. 82-149, dated July 28, 1982. CBP stated that the “actual function of these items to the manufacturer, and their essentiality to the manufacturing process,” were the primary questions, the answers to which will determine their dutiability. CBP examined the capability of the foreign manufacturer to produce the desired garments without the necessity of using the sketches, patterns, photographs etc. and whether the sketches, patterns, photographs merely facilitated the oral or narrative description as to what the importer wanted to produce. CBP held that the designs, samples, prototypes etc. furnished to the manufacturer were not dutiable assists, “but rather specifications reflecting instructions to the manufacturer as to what to produce, but not how to produce, the particular garment.”
In Headquarters Ruling Letter (“HRL”) 543064, dated June 1, 1983, CBP ruled that pattern-making functions performed in Hong Kong accompanied by a narrative description and prototype was not a dutiable assist because the pattern-making was not necessary for the production of the imported merchandise. The foreign manufacturer could have produced the garments with just the narrative description and prototype. The importer provided the pattern to the manufacturer in order to ensure that the final garment corresponds to the designer’s fashion concept and the company’s understanding of what will sell in the American market.
In HRL 548097, dated January 28, 2003, CBP ruled that transparencies and films produced in the Netherlands provided free of charge to a foreign manufacturer were assists. CBP noted that “the transparencies and films impart the essence of the product design, without which the manufacturers could not produce the imported merchandise.” The stage of production that took place in the Netherlands will be considered dutiable. In HRL 548532, dated July 16, 2004, CBP ruled that “knitdowns”, miniature knit-to-shape items illustrating certain design features, were not assists because they were not copied exactly as purchased but rather “used mainly as inspiration” to create a design in the U.S.
In a recent case, CBP ruled in HRL 548566, dated October 19, 2004, that certain patterns created for sample garments and provided free of charge from the buyer to the foreign manufacturer were considered assists. CBP stressed in this ruling the importance of whether the manufacturer could produce the article without the drawings or patterns. CBP stated that “if a foreign garment manufacturer cannot produce or manufacture merchandise without an importer’s designs, samples, patterns, etc. that are made abroad, such designs, samples, patterns, etc. should be included in the dutiable value of the imported merchandise. In HRL 548566, CBP determined that the record did not contain sufficient information and documentation to establish that foreign manufacturers could make the garments without the use of patterns. Further, the pattern was unique and not a minor modification of an existing style. Therefore, the pattern was determined to be necessary for the production of the imported garments and therefore, dutiable as an assist.
In this case, we find that the sketches, as described above as preliminary conceptual sketches, are not an assist. They are not essential to the production of the apparel but merely facilitate the oral and narrative descriptions of what the importer would like the foreign manufacturer to produce. Like the knit-downs in HRL 548532, they are not copied exactly and are mainly used to inspire or direct the pattern-maker to create a pattern. A pattern must be created in order to produce the garments.
However, we find that the patterns which Spa Uniforms pays for and then provides free of charge to the foreign manufacturer are considered an assist. They are detailed, and are copied exactly, rather than a source of inspiration for the foreign manufacturer. Most importantly, you state that they are necessary for the production of the imported merchandise.
Spa Uniforms has proposed to report the acquisition cost of the patterns in accordance with 19 CFR 152.103(b)(iii). Pursuant to 19 CFR 152.102(a)(3)(iii), which is applicable to assists described in paragraph (a)(1)(iv), if the assist was purchased or leased by the buyer from an unrelated person, the value of the assist is the cost of the purchase or of the lease. Since Spa Uniforms has stated that it is unrelated to the pattern-maker in this case, the value of the assist would be the acquisition cost of the patterns.
The preliminary sketches described above would not be considered an assist. The patterns paid for by Spa Uniforms and provided to the foreign manufacturer free of charge would be considered a dutaible assist pursuant to
19 U.S.C. 1401a(h)(1).
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs official handling the transaction.
Monika R. Brenner
Chief, Valuation & Special Programs Branch