OT:RR:CTF:VS H326069 AP
Electronics Center of Excellence and Expertise
U.S. Customs and Border Protection
301 E. Ocean Blvd., Suite 1400
Long Beach, CA 90802
Attn: Christopher Berg, Import Specialist
RE: Internal Advice; Allocation of Tooling Assists
Dear Center Director:
This is in response to the request for internal advice dated June 28, 2022, on behalf of Continental Automotive Systems, Inc. (“CAS”), regarding whether CAS may use a weighted harmonized tariff schedule (“HTS”) value methodology to apportion the cost of certain equipment used as tooling assists.
CAS provides equipment to foreign manufacturers to assist in the manufacture of various parts imported into the United States by different importers of record. Each of the products utilizes a different manufacturing process and deploys the equipment provided by CAS in different ways. CAS purchases the equipment from unrelated parties and its value is based on the cost of the equipment’s acquisition and includes transportation costs to the place of production. The duty rates, quantities, and classifications of the imported parts vary, which makes it difficult and time-consuming to allocate the assist for the equipment on a line-byline basis. CAS has developed a reconciliation process to allocate a value for the tooling assist to all parts that were manufactured with its assistance based on the weighted HTS value of the imports.
Specifically, CAS allocates a percentage of the tooling value as an assist. The percentage equals the value of the parts imported by a particular importer of record on a certain entry over the value of all the parts imported by a particular importer of record that used the tooling assist in a given year. The percentage is multiplied by the total value of the tooling assist and then added to the value of the imported parts as an assist. CAS pays the duty on the original value of the imported parts plus the allocated value of the assist. Any product for which CAS cannot determine whether a tooling assist was utilized in the manufacturing process receives an allocation of the assist valuation. The tooling allocation does not apply the tooling assist to the product line or part level it was used to produce and does not account for the country of origin.
For example, if the value of the tooling used to manufacture parts imported by an importer is $15,000, the total value of the parts imported by that importer in a year that used the assist is $38,688, the value of the parts imported by that importer for a given entry is $7,669 and the duty rate on the entry is 27.5 percent, then the weighted HTS value will be 19.82 percent (equal to $7,669 divided by $38,688 and multiplied by 100). The $7,669 value represents 19.82 percent of the value of parts imported in a given year. CAS refers to this percentage as the weighted HTS value. Since all products covered by the entry utilize the tooling assist in the manufacturing process, CAS multiplies the weighted HTS value of 19.82 percent by the $15,000 tooling cost to allocate an additional $2,973.40 for the value of the assist. The result is that the value of the parts imported on the entry is increased to $10,642.40 (equal to the original entry value of $7,669 plus the tooling addition of $2,973.40). CAS pays the 27.5 percent duty rate on the full value of $10,642.40, which includes the $2,973.40 tooling addition, resulting in duty in the amount of $2,926.66. CAS states that its proposed tooling allocation follows acceptable accounting practices and captures the value of the tooling assist.
How should the value of the instant tooling assist be apportioned?
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 (TAA; 19 U.S.C.
§ 1401a). The preferred method of appraisement is transaction value, which is defined as the “price actually paid or payable for the merchandise when sold for exportation to the United States,” plus certain enumerated additions, including “the value, apportioned as appropriate, of any assist.” 19 U.S.C. § 1401a(b)(1)(C). For the purpose of this ruling we assume that transaction value is the proper basis of appraisement.
19 U.S.C. § 1401a(h) provides in pertinent part 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: … (ii) Tools, dies, molds, and similar items used in the production of the imported merchandise.
There is no dispute in the instant case that the provided tooling is an assist that must be added to the price actually paid or payable. The only question is whether the importer’s proposed method of apportionment is acceptable to U.S. Customs and Border Protection (“CBP”).
CBP has authority to accept a method of apportionment of assists that is “[m]ade in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles.” See 19 C.F.R. § 152.103(e)(1). The total value of the assist may be apportioned over the first shipment (if the importer wishes to pay duty on the entire value at once), the number of units produced up to the time of the first shipment, or the entire anticipated production. In addition to these three methods, the importer may request some other method of apportionment in accordance with generally accepted accounting principles.
19 C.F.R. § 152.103(e)(1) provides the following regarding the apportionment of assist:
The apportionment of the value of assists to imported merchandise will be made in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles. The method of apportionment actually accepted by Customs will depend upon the documentation submitted by the importer. If the entire anticipated production using the assist is for exportation to the United States, the total value may be apportioned over (i) the first shipment, if the importer wishes to pay duty on the entire value at once, (ii) the number of units produced up to the time of the first shipment, or (iii) the entire anticipated production. In addition to these three methods, the importer may request some other method of apportionment in accordance with generally accepted accounting principles. If the anticipated production is only partially for exportation to the United States, or if the assist is used in several countries, the method of apportionment will depend upon the documentation submitted by the importer.
In Headquarters Ruling Letter (“HQ”) H031244, dated Apr. 10, 2009, the value of imports was subject to various rates of duty. In that case, the importer provided design assists for garments manufactured in Asia and Africa and approximately 80% of the garments produced in Africa were entered duty-free under the African Growth and Opportunity Act. The importer proposed to divide the total value of the assists for each calendar year according to the percentage of the total value of the imported goods represented by the value of imported goods for each duty rate during that calendar year. For example, if the value of the assist for a year was $50,000, and the total value of imports for the year was $1,000,000, with $500,000 at a zero duty rate, $300,000 at a five percent duty rate, and $200,000 at a ten percent duty rate, the importer would allocate $25,000 of the assist’s value to the duty-free entries, $15,000 to the five percent duty entries, and $10,000 to the ten percent duty entries. This method of apportionment was in accordance with 19 C.F.R. § 152.103. Back in 2009, there were no section 232 and section 301 duties.
In HQ H311213, dated Feb. 10, 2021, the importer used a “tooling factor” in the reconciliation process to apply tooling assists equally over all U.S. imports, regardless of whether the imports were manufactured using the tooling. The tooling assists were used in the production of the imported merchandise, but the cost was not traced to specific products or vendors. The importer imported under 233 different subheadings with 42 different countries of origin. Although the importer claimed that most of its imports were duty-free, the remaining products by value were dutiable and the importer paid a significant amount in duties, fees, and antidumping/countervailing duties to CBP. CBP determined that the importer needed to apportion the assists provided to the foreign manufacturers for the specific product lines the assists were provided for to account for the differing duty rates applicable to the imported merchandise. HQ H317569, dated Apr. 28, 2021, concluded that the importer should be able to identify the location of the tooling it provided and products for which such tooling was used. The importer in HQ H317569 apportioned tooling costs to all imported products regardless of the actual tooling assist used in the production of the articles and disregarded the country of origin and applicable duty rates of the various imported articles. Since some of the imported articles were subject to section 232 or section 301 duties, the accuracy of the value of the tooling assist added to the price actually paid or payable under transaction value could make a significant difference in the duties owed.
In the instant matter, the tooling assists are used in the production of the imported parts, but the cost is not traced to the specific parts. The calculation does not trace the countries of origin of the imported parts and whether they are subject to section 232 and section 301 duties, which could result in much higher duties. Therefore, CAS’s proposed tooling allocation methodology is not reasonable under 19 C.F.R. § 152.103(e). The importer must apportion the assists provided to the foreign manufacturers for the specific product lines the assists were provided for to take into consideration the differing duty rates applicable to the imported merchandise.
We find that the proposed tooling allocation is not reasonable under the requirements of 19 C.F.R. § 152.103(e). The importer should be able to apportion each tooling assist to the product line or part level in which it is used.
You are to mail this decision to the U.S. importer, through the importer’s counsel, no later than 60 days from the date of the decision. At that time, the Office of Trade, Regulations and Rulings, will make the decision available to CBP personnel and the public at www.cbp.gov, through the Freedom of Information Act and other methods of public distribution.
Monika R. Brenner, Chief
Valuation and Special Programs Branch