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HQ 545917





August 1, 1996

VAL RR:IT:VA 545917 LPF

CATEGORY: VALUATION

Port Director
U.S. Customs Service
New York Seaport
6 World Trade Center
New York, NY 10048

RE: Reconsi deration of HRL 544662; Internal Advice Request 62/91; Redipacking, van stuffing, and palletizing of children's wearing apparel; 19 U.S.C. ?1401a(b)(4), price actually paid or payable; Charges incurred for international shipment; Generra; Chrysler Dear Director:

This decision concerns a request made by Sharretts, Paley, Carter & Blauvelt, P.C. on behalf of their client, Baby Togs, Inc., for reconsideration of the portion of Headquarters Ruling Letter (HRL) 544662, issued March 18, 1994 as internal advice 62/91, concerning the dutiability of packing/processing costs. In this decision it was determined, based on the evidence submitted, that the costs incurred by the buyer for redipacking, van stuffing, and palletizing the imported merchandise were to be included as part of the transaction value of the merchandise, as packing costs incurred by the buyer with respect to the imported merchandise pursuant to section 402(b)(1)(A) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a. Since the issuance of this decision, counsel has submitted additional information, including videotapes of the packing process in the Philippines and your office has had the opportunity to witness, firsthand in the U.S., the redipack process and unloading of sealed, ocean containers consisting of the merchandise. We have reviewed HRL 544662 in light of the newly submitted information and the proper appraisement is as follows. We regret the delay in responding.

FACTS:

Novelty Philippines, Inc. (NPI) is a wholly owned subsidiary of Baby Togs, Inc. for whom it provides redipacking, van stuffing, and palletizing services. Redipacking in essence is a packing procedure whereby goods which previously were bulkpacked then are segregated and physically removed to a separate, nearby processing area. At this point, the sealed and strapped cartons are opened and unpacked and the garments are pressed, placed on hangers, wrapped with tissue paper, placed in polybags, and repacked for retail sale in boxes containing either six or twelve garments.

Since the issuance of HRL 544662, we met with Baby Togs and counsel (on December 5, 1995) and have reviewed additional submissions from counsel, including a video tape of the operation. Furthermore, the cognizant National Import Specialist (NIS) has visited the Baby Togs facility in New Jersey and surveyed the actual redipack process also performed there. The NIS witnessed the complete loading and unloading of sealed ocean containers, noting that the containers consisted of both bulkpacked and redipacked cartons. According to the NIS, these bulkpacked cartons appeared identical to those appearing in the NPI video. Furthermore, it is our understanding that the U.S. redipack operation, which likewise is performed on bulkpacked carton goods, is the same as that in the Philippines.

Counsel explains that although approximately 80 to 90 percent of the total imported merchandise is redipacked, all merchandise initially is bulkpacked since it is not known until that point which merchandise must be redipacked. It was explained that redipacking a substantial quantity of the merchandise in the Philippines as opposed to the U.S. alleviates some of the congestion, pressure, and expenses which could result from conducting such operations at the U.S. facility.

Regardless as to whether the goods ultimately are shipped bulkpacked or redipacked to the U.S., the merchandise is priced in bulkpacked condition and invoiced at that price. In this regard, counsel has submitted entry summaries (Customs Forms 7501), invoices, and proofs of payments demonstrating that Baby Togs reimburses NPI for the latter's actual redipack expenses on a periodic basis, unrelated to shipments and/or quantities shipped. Additionally, counsel submitted NPI's Statement of Income and Expenses revealing that NPI's "income from shipments" does not include separately categorized redipack costs. Redipack charge lists were made available showing that the redipack costs reflect actual labor costs plus a percentage for fringe benefits, overhead, and profits. Moreover, counsel submits that Baby Togs takes title to the goods in their bulkpacked condition. The merchandise is sold by NPI to Baby Togs ex-factory, the latter being responsible for all freight and related costs from the NPI factory to the U.S. Thus, counsel submits that the redipack costs, other than the packaging materials, are not part of the price actually paid or payable as invoiced and paid.

Van stuffing and palletizing is the operation of placing and arranging the packed cartons into containers. These operations also are performed by NPI personnel at the Philippine facility. Apparently, NPI installs the cartons in the shipping containers in order to minimize wasted container space and freight charges. By packing cartons on pallets, it appears that NPI decreases the time spent loading the goods and handling the containers. Packed cartons are computer bar coded to reveal each carton's contents prior to container on-loading. This evidently enhances inventory control and facilitates the proper distribution of merchandise at the New Jersey facility when it is off-loaded. Additionally, packing and sealing containers at NPI premises apparently decreases the likelihood that container contents will be pilfered while they are in transit to the U.S.

Counsel acknowledges that their initial submissions regarding NPI's packing operations were not supported by a substantial amount of documentation. However, counsel asserts that the newly submitted evidence establishes that these costs do not comprise part of the transaction value for the imported merchandise. First, counsel submits that these amounts are not dutiable as part of the price actually paid or payable in accordance with the decisions of Generra Sportswear Co. v. United States, 8 CAFC 132, 905 F.2d 377 (1990) and Chrysler Corporation v. United States, 17 CIT 1049 (1993). Moreover, counsel contends that in the event Customs were to conclude that such costs were part of the price actually paid or payable, they nevertheless would be deducted from the price as "costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the U.S." documentation indicating that NPI's van stuffing and palletizing operations are identical to services normally performed by independent cargo consolidators and shipping companies. Finally, insofar as the subject merchandise is packed ready for shipment in seaworthy containers prior to being redipacked, counsel provides that the amounts at issue do not constitute packing costs to be added to the price actually paid or payable pursuant to ?402(b)(1)(A) of the TAA.

ISSUE:

Based on the evidence submitted whether the redipacking, van stuffing, and palletizing operations incurred by the buyer are to be included within the transaction value of the imported merchandise.

LAW AND ANALYSIS:

The preferred method of appraising merchandise imported into the United States is transaction value pursuant to section 402(b) of the TAA. Section 402(b)(1) of the TAA provides, in pertinent part, that the 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, including the packing costs incurred by the buyer with respect to the imported merchandise. ?402(b)(1)(A) of the TAA.

The "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as the "total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise...) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller."

Price actually paid or payable

Two recent court cases have addressed the meaning of the term "price actually paid or payable." In Generra, supra, the Court of Appeals for the Federal Circuit considered whether quota charges paid to the seller on behalf of the buyer were part of the price actually paid or payable for the imported goods. In reversing the decision of the lower court, the appellate court held that the term "total payment" is all-inclusive and that "as long as the quota payment was made to the seller in exchange for merchandise sold for export to the United States, the payment properly may be included in transaction value, even if the payment represents something other than the per se value of the goods." The court also explained that it did not intend that Customs engage in extensive fact-finding to determine whether separate charges, all resulting in payments to the seller in connection with the purchase of imported merchandise, were for the merchandise or something else.

In Chrysler, supra, the Court of International Trade applied the Generra standard and determined that although tooling expenses incurred for the production of the merchandise were part of the price actually paid or payable for the imported merchandise, certain shortfall and special application fees which the buyer paid to the seller were not a component of the price actually paid or payable. With regard to the latter fees, the court found that the evidence established that the fees were independent and unrelated costs assessed because the buyer failed to purchase other products from the seller and not a component of the price of the imported engines.

Accordingly, it has been our position that based on Generra, there is a presumption that all payments made by a buyer to a seller are part of the price actually paid or payable for the imported merchandise. However, this presumption may be rebutted by evidence which clearly establishes that the payments, like those in Chrysler, are completely unrelated to the imported merchandise.

Specifically, counsel provides that in accordance with Generra, the redipacking costs should not be subject to duty since: 1) sections 402(b)(1)(A) and 402(h) of the TAA precisely address the dutiability of packing costs; 2) enactment of the TAA did not change Customs' policy that duty should not be assessed on packing costs incurred after merchandise already has been packed ready for shipment; 3) the redipacking charges are not invoice specific; 4) assessing duty on redipacking charges would require Customs to engage in extensive fact finding to determine the amount of duty applicable to each shipment; and 5) redipacking is not a prerequisite to exportation since the goods can be and are exported to the U.S. without being redipacked. Furthermore, like the fees at issue in Chrysler, counsel provides that the redipacking charges are independent, unrelated costs, in this case, assessed after the goods have been bulkpacked in seaworthy containers. Counsel adds that Baby Togs treats the charges separately from the cost of the merchandise in its accounting records, distinct and apart from payment for the goods.

In accord with numerous Customs decisions addressing the Generra and Chrysler cases, we must disagree. The TAA precisely addresses the dutiability of packing costs as additions to the price actually paid or payable when not otherwise included in the price. However, based on the facts presented, we find the amounts at issue to be part of the price actually paid or payable, that is, part of the total payment. In this regard, Customs has determined that payments from the buyer to or for the benefit of the seller, regardless as to whether they could have constituted assists, royalties, or proceeds as set forth in HRLs 545770, issued June 21, 1995; 545380, issued March 30, 1995; 544800, issued May 17, 1994; and 544867, issued December 15, 1993. This is fully consistent with the language set forth in the TAA.

Authority to include the redipacking amounts as part of the price actually paid or payable is derived from numerous Customs decisions where varied payments, for services which may have appeared incidental in nature, were found to be part of the total payment for the goods. For instance, in HRL 545490, issued August 31, 1994, it was determined that payments for "finishing" services in connection with apparel such as labeling, pressing, acid and stone washing, bleaching, softening, and quality control would be part of the total payment, insofar as such payments were made from the buyer to or for the benefit of the seller. Likewise, Customs has found the following types of payments to be part of the total payment for the imported merchandise: operating expenses such as labor, overhead, and administrative costs (HRL 545456, issued October 21, 1994); direct and pass-through/reimbursement payments to a shelter/assembly operation (1.) (HRL 544764, issued January 6, 1994); currency exchange hedging costs (HRL 544971, issued October 20, 1993); and warehousing and insurance charges (HRLs 544758, issued February 21, 1992; 543569, issued July 16, 1985; and 542984, issued April 8, 1983).

For these reasons, we do not find the subject fees to constitute independent, unrelated costs as was the case in Chrysler. In other words, the fact that the redipacking operations occur after the goods have been bulkpacked in seaworthy containers does not mandate a finding that the fees are not made in connection with the purchase of the imported merchandise. (2.) Simply stated, we find such operations (i.e., the pressing, hanging, wrapping, bagging, and repacking of certain quantities for retail sale) to represent more than just packing for purposes of shipment, but rather retail packing specifically requested and required by the buyers for purposes of selling the goods and, hence, to pertain to the merchandise. The videos illustrating the redipacking process strongly support this conclusion.

It is our position that this remains the case, regardless of counsel's additional arguments. First, the fact that such payments are made periodically, and not for individual shipments, and that the charges are accounted for separately from the cost of the merchandise does not demonstrate that the amounts are not made in connection with the purchase of the imported merchandise. See Chrysler, supra; HRL 544694, issued February 14, 1995; HRL 545456, issued October 21, 1994; and HRL 542975, issued March 9, 1983. Additionally, we recognize that the Generra court's reluctance to require Customs to engage in extensive fact finding pertained to whether separate payments to the seller were for the merchandise or something other than merchandise, as opposed to the calculation of the amount of duty actually owed on each shipment, as provided by counsel. Furthermore, as demonstrated in the above analysis, Customs never has adopted the general "policy," articulated by counsel, to wit, that duty should be assessed on packing costs incurred after merchandise already has been packed ready for shipment. (3.) Finally, in accord with Generra, we reiterate that, "as long as the . . . payment was made to the seller in exchange for merchandise sold for export to the United States" such amounts are part of the total payment for the imported merchandise regardless as to when they were incurred and whether they were a "prerequisite" or "condition precedent" to exportation of the merchandise. (4.)

Exclusion for international shipment

Moreover, we do not find the redipacking fees to constitute costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise which would be excluded from the price actually paid or payable in accordance with ?402(b)(4)(A). In general, Customs has not considered charges incurred before merchandise has left the country of exportation to constitute such international freight charges. See HRL 543501, issued May 2, 1985, where charges for storage and insurance paid to the seller before the international shipment commenced (and in the case of the latter, before exportation) were not found to constitute costs for international shipment. Likewise, Customs does not find such amounts to represent foreign inland "freight" charges, but charges pertaining to the goods themselves.

However, Customs has recognized that loading merchandise onto a vessel destined for the U.S. does constitute services incident to international shipment. See HRL 543518, issued September 3, 1985. Hence, in the event Customs was to find the fees relating to the van stuffing and palletizing as part of the total payment and, thus, part of the price actually paid or payable for the merchandise they would be excluded from the price as costs pertaining to international shipment. We note that while counsel has proffered evidence indicating that the van stuffing and palletizing services are identical to services normally performed by independent cargo consolidators and shipping companies no similar evidence has been presented regarding the redipacking operations.

Addition to the price as packing costs

Counsel cites numerous decisions wherein Customs has stated that only packing costs necessary to place goods in seaworthy condition packed ready for shipment to the U.S., as opposed to costs incurred for repacking merchandise after it has been packed in such condition, are included in the transaction value of the imported merchandise as an addition to the price actually paid or payable.

In this context, we feel it unnecessary to address the dutiability of the redipacking charges since it is our position that such amounts already are included in the transaction value as part of the price actually paid or payable for the merchandise. However, we do acknowledge that the van stuffing and palletizing fees would not form part of the transaction value, alternatively, as packing costs to be added to the price. In our opinion, they are incurred after the goods have been packed ready for shipment to the U.S. This comports with the definition of packing costs as, "the cost of all containers and coverings of whatever nature and of packing, whether for labor or materials, used in placing merchandise in condition, packed ready for shipment to the United States." ?402(h)(3) of the TAA.

HOLDING:

Based on the additional information submitted, we find that the redipacking operations are included within the transaction value as part of the price actually paid or payable, while the van stuffing and palletizing operations are not included within the transaction value because they do not constitute part of the price, as services incident to international shipment, nor an addition to that price as packing costs.

Because it was appropriate to appraise the merchandise based on the information available at that time, as determined in HRL 544662, and the decision herein is based on additional information which was not previously available for Customs' consideration, modification or revocation of that decision, pursuant to section 625, Tariff Act of 1930 (19 U.S.C. 1625), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993), is not warranted. However, for entries on which liquidation has not become final, as well as for future entries, appraisement is to be fixed in accordance with the foregoing.

This decision should be mailed by your office to the party requesting reconsideration of the internal advice no later than sixty days from the date of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Stuart P. Seidel

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