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HQ 544498

June 19, 1990
VAL CO:R:C:V 544498 ML


P.O. Box 85

RE: Request for Ruling on Proration of Export Preparation Costs

This is in response to your letter of April 25, 1990, requesting a ruling regarding the proration of export preparation costs. This request follows a prior ruling on February 23, 1990, file VAL CO:R:C:V 544204 DHS, in which you were informed that a decision as to the aforementioned issue could not be made without the submission of additional documentation. Having received further explanations and information, we can now address this issue.


Production inventory was transported to the United States in 200 forty foot containers over the course of at least one year. The shipments are said to include tooling, production inventories and spare parts. The preparation costs for export shipping include nine (9) functions. The areas covered by these costs include the initial inspection confirmation and initial boxing in the ---------- shop to the final packing of the goods in a rented packing area. You have stated that these costs were included in contain the expenses incurred in the nine functions involved in the preparation of the tools and materials for export. Copies of your foreign wire transfer amounted to $2,182,362.50 for the export preparation costs, excluding the preparation costs for the last two container loads received the week of April 16-20, 1990. Based on your own calculations, you feel that -------------- owes a total of $26,817.98 to Customs for duties on export preparation costs.


Can export preparation costs be prorated on a percentage basis?


The preferred method of appraising merchandise is transaction value which is defined in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C. 1401a(b)) as the "price actually paid or payable" for merchandise when sold for exportation to the United States, plus certain enumerated additions. Section 402(b)(1)(A) of the TAA provides for the addition of "packing costs incurred by the buyer with respect to the imported merchandise" to the price actually paid or payable. Section 402(h)(3) of the TAA defines packing costs as including the costs incurred by the buyer for all containers and coverings of whatever nature and for the labor and materials used in packing. There seems to be no question that the export preparation costs are dutiable under this provision.

Section 500(a) of the Tariff Act of 1930, as amended (19 U.S.C. 1500(a), authorizes the appropriate Customs officer to appraise merchandise by ascertaining or estimating the value thereof, under section 1401a, by all reasonable way and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, other document to the contrary notwithstanding, regardless of the rate of duty. Consequently, it is the function of the District Director to appraise merchandise and not Headquarters.

Additionally, while it is unclear just how many entries are involved, if generally accepted accounting principles are applied, as that term is defined in the Statement of Administrative Action, then the proration of export preparation costs would be acceptable.


Merchandise is appraised on an entry by entry basis by the District Director. Based on the foregoing, the proration of export preparation costs would be acceptable as long as it is consistent with generally accepted accounting principles.


John Durant, Director
Commercial Rulings Division

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