United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1995 HQ Rulings > HQ 226271 - HQ 545187 > HQ 545161

Previous Ruling Next Ruling
HQ 545161




April 7, 1994
VAL CO:R:C:V 545161 ILK

CATEGORY: VALUATION

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

Previous Ruling Next Ruling

See also: