OT-RR:CTF:VS H023814 GOB
Teresa M. Polino, Esq.
Hogan & Hartson
555 Thirteenth Street, N.W.
Washington, DC 20004
RE: 19 U.S.C. § 1401a(h)((1)(A); Assists; Testing Equipment
Dear Ms. Polino:
This is in response to your correspondence of February 21, 2008. Our ruling follows.
FACTS:
You describe the pertinent facts as follows. The requester is a producer of power conversion and control systems incorporated in production equipment used in the manufacture of integrated circuits and other high technology products. The requester’s systems are key elements of industrial manufacturing systems. The assembly process for the systems includes certain Printed Circuit Board Assemblies (“PCBAs”) produced by contract manufacturers in China.
Your ruling request pertains to the In-Circuit Test (“ICT”) fixtures provided by the requester to the companies which manufacture the PCBAs. An ICT fixture is essentially an electromechanical adapter for the machine which tests the PCBAs. The testing is for the purpose of detecting manufacturing defects and verifying the manufacturing process.
You state that the ICT fixtures are not a necessary part of production or perfection of the manufactured product. They are used for quality control purposes, such as to check the product prior to its being sent to the manufacturer who will incorporate the PCBAs into the final product. You state that the PCBAs can be manufactured without such testing in that the testing serves to benefit the requester with higher yields of good PCBAs at the factory and to benefit the vendor in terms of fewer rejected goods and returns. The testing does not result in changes or modifications in subsequently produced units.
You state that, in some cases, the testing occurs at the end of production as a final check on quality control. In other cases, the testing is performed prior to final assembly because the subsequent installation of some components makes the PCBA physically unable to fit into the testing fixture and the machine which performs the testing. In such a case, the quality check occurs prior to the final assembly of the PCBA. Accordingly, the ICT fixtures are provided to the manufacturer with the instruction that the manufacturer use them to ensure that the final product sold to the requester meets the requester’s quality standard. The requester does not mandate when in the production process the testing occurs, as the best place for the testing may depend on product, process, size of the fixture, and other factors.
ISSUE:
Whether the ICT fixtures are dutiable assists in the transaction value appraisement of the imported power conversion and control systems?
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 (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)(1)(A) provides as follows:
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.
If the ICT fixtures constitute dutiable assists, it is pursuant to 19 U.S.C. § 1401a(h)(1)(A)(ii), as “[t]ools, dies, molds and similar items used in the production of the imported merchandise.”
In Aris Isotoner Gloves, Inc. v. United States, 14 CIT 693, 696 (1990), the court cited Texas Apparel Co. v. United States, 12 CIT 1002, 698 F. Supp. 932 (1988), aff’d 883 F. 2d 99 (CAFC 1989), cert. denied 110 S. Ct. 728 (1990), in recognizing the distinction between machinery which works directly on the merchandise or contributes directly to its manufacture and machinery which is not used directly in the production of merchandise itself. The court held that the plaintiff was entitled to recovery as to the non-production machinery, which was not directly used in producing imported merchandise, while machinery used directly in the production of imported merchandise constituted an assist under 19 U.S.C. 1401a(h)(1)(A). The court in Aris noted that the reasoning in Texas Apparel went beyond mere deference to Customs and Border Protection (“CBP”) and also noted that the court in Texas Apparel examined the legislative history of the Trade Agreements Act, concluding that Congress did not intend a narrow or restrictive view of the term “assist.” Texas Apparel, 12 CIT at 1007, 698 F. Supp. at 935. The court in Aris quoted the Texas Apparel opinion’s reference to the definition of a “tool” as “an implement or object used in performing an operation or carrying on work of any kind.” 12 CIT at 1008, 698 F. Supp. at 937, quoting Webster’s Third New International Dictionary (1981).
In HQ 544508, dated June 19, 1990, CBP found that where testing costs were incurred during the manufacture and/or assembly of a product and the testing was shown to be an essential factor in the fabrication process (i.e., the nature of the finished product is such that ascertaining the sensitivity, accuracy, etc. periodically throughout production is requisite to the finished product’s marketability), the testing equipment provided free of charge to the foreign manufacturer by the U.S. importer constituted an assist within the meaning of category 19 U.S.C. § 1401a(h)(1)(A).
In HQ 545170, dated October 27, 1994, CBP stated that the language “similar items used in the production of the imported merchandise,” as that language is used in category (ii) of the assist provision, was intended to include as assists equipment that, like tools, dies, and molds, directly contributes to the final product. Therefore, CBP found that the cost of final testing equipment used for testing assembled products was to be included as an assist. CBP stated that although the testing was performed on fully assembled products, the nature of the products required such testing, as the integrity of the Pcb could not otherwise be determined. The fact that the Pcb's frequently did not pass testing and were returned to the assembly line for further processing was evidence that production of merchandise was not complete until the Pcb's were determined to be functioning. As a result, CBP found that the testing equipment was used during the production process and was essential to the "production of the imported merchandise."
In this case, you state that, in some instances, the testing occurs at the end of production as a final quality control check. In other cases, the testing is performed before final assembly because the subsequent installation of certain components makes the PCBA physically unable to fit into the testing fixture and the testing machine. While it may be that the PCBA’s can be produced without testing, such testing, whether performed during or after production of the PCBA’s, is directly related to the production of the PCBA’s which are incorporated into the imported merchandise. The ICT fixture is a tool that performs the testing which contributes directly to the manufacture of the PCBA’s, is clearly used in the production of the PCBA’s, and contributes to a higher yield of functioning PCBA’s. Accordingly, we find that the ICT fixtures are dutiable assists, regardless of when the testing occurs. This finding is consistent with HQ 545170.
HOLDING:
The ICT fixtures are dutiable assists in the transaction value appraisement of the imported power conversion and control systems.
A copy of this ruling letter should be attached to the entry
documents filed at the time the subject goods are entered. If the documents have been filed without a copy, this ruling letter should be brought to the attention of CBP.
Sincerely,
Monika R. Brenner
Chief
Valuation & Special Programs Branch