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 > 2005 HQ Rulings > HQ 231004 - HQ 563134 > HQ 548557

Previous Ruling Next Ruling
HQ 548557

October 20, 2004

VAL-RR:IT:V 548557 GG


Mr. Richard G. Geary
Corporate Manager
Customs Planning & Compliance
Timex Corporation
Waterbury, Connecticut 06720

RE: Modification of HQ 544241; Appraisement of Watches; Assists

Dear Mr. Geary:

This is in reference to Headquarters Ruling Letter (HQ) 544241, dated January 12, 1989, regarding the appraisement of watches that were sent overseas to be repaired and then returned. We have reviewed the ruling and find one of its conclusions to be incorrect.

Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. 1625(c)(1)), 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), a notice was published on August 18, 2004, in Vol. 38, No. 34 of the Customs Bulletin, proposing to modify HQ 544241. No comments were received in response to this notice.


The facts as originally set forth in HQ 544241 are:

You indicate that your company (importer) purchases and imports watches assembled in the Philippines by a related company. The watches are then sold in the United States with the benefit of a warranty extended to your customers.

Defective watches, both in and out of warranty, are returned to the importer for repair. You state that the defective watches are then exported to importer’s related party in the Philippines for repair and return. The watches are repaired and then sold
back to the importer at prices which cover the cost of repairs plus a mark-up.

You state that at the present time, the watches are registered and exported under Customs supervision and are entered into the United States under Item 806.20, TSUS [since superseded by subheadings 9802.00.40 and 50 of the Harmonized Tariff Schedule of the United States]. However, in the future, you will continue to have the watches repaired in the Philippines but without export registration and Customs supervision. You are inquiring as to the proper method of appraisement of the watches.


What is the proper method of appraising watches that are repaired abroad by a related party and subsequently returned to the United States?


You are correct in stating that the watches will be appraised pursuant to section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a). Transaction value, the preferred method of appraisement, is defined as the “price actually paid or payable” when the merchandise is sold for exportation to the United States. See section 402(b) of the TAA. With respect to the situation you describe, section 152.103(a)(3) of the Customs and Border Protection (CBP) (19 CFR § 152.103(a)(3)) states the following:

The price actually paid or payable may represent an amount for the assembly of imported merchandise in which the seller has no interest other than as the assembler. The price actually paid or payable in that case will be calculated by the addition of the components and required adjustments to form the basis for the transaction value.

From the information you have provided, we cannot conclusively state that transaction value is inapplicable. The initial decision as to whether transaction value is appropriate in a related party situation is made by the appraising officer.

If the appraising officer is satisfied that the parties, albeit related, buy and sell from one another as if they are unrelated, then transaction value may be proper. Furthermore, if the price closely approximates one of the “test values” which are enumerated in section 402(b)(2)(B) of the TAA, then transaction value is also appropriate in appraising the merchandise.

Assuming that transaction value is found to be improper in this case, then it is necessary to proceed sequentially through the remaining bases of appraisement provided for under the valuation statute.

The next basis of appraisement, transaction value of identical or similar merchandise pursuant to section 402(c), appears to be inapplicable. U.S. Customs and Border Protection is in possession of no documentation addressing the appraisement of identical or similar used watches.

With respect to deductive and computed value, sections 402(d) and 402(e), respectively, the importer has a choice as to which method is to be utilized. However, here, as you indicate, deductive value is not available since the watches are not “sold” in the United States.

Computed value pursuant to section 402(e) of the TAA appears to be the appropriate method of appraisement in this case. The computed value of imported merchandise is the sum of the cost or value of the materials and the fabrication and other processing, profit and general expenses of the producer, any assist, and packing costs.

In HQ 544241, which this ruling is modifying, CBP’s predecessor, the U.S. Customs Service, determined that the defective watches that were sent abroad to be repaired were assists. Upon reconsideration, we now deem that determination to be incorrect. Section 402(h)(1)(A) of the TAA defines assists in the following manner:

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 sale for export to the United States of the merchandise:

Materials, components, parts, and similar items incorporated in the imported merchandise. Tools, dies, molds, and similar items used in the production of the imported merchandise. Merchandise consumed in the production of the imported merchandise. 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.

The defective watches fall within none of the above categories. They quite clearly are neither tools, dies or molds used in the production of the imported merchandise, nor are they engineering, development, artwork, design work etc. necessary for the production of the imported merchandise. The defective watches also are not “materials, components, parts, and similar items incorporated in the imported merchandise,” because they are the imported merchandise, albeit in an unrepaired state. Finally, the defective watches are merely repaired and thus are not “consumed in the production of the imported merchandise.” For these reasons, we hereby revoke that aspect of HQ 544241 that determined that the defective watches are assists. In so doing, we concurrently overturn the determination that the value attributed to the defective watches in their capacity as assists is equal to the costs incurred for transporting them to the related party’s plant.

For purposes of this response, we are assuming to the extent applicable, that the appraised value of the defective watches will include all statutory elements of computed value. Further, absent more specific information pertaining to the profit and general expenses of the repaired watches, we are unable to conclude that the repaired watches are not of the same class as new watches.


Absent a finding by the appraising officer that the repaired watches may be appraised under transaction value, the proper appraisement method is computed value. The defective watches that are exported for repair and subsequently returned are not assists.


HQ 544241 dated January 12, 1989, is modified. In accordance with 19 U.S.C. 1625(c), this ruling will become effective sixty (60) days after publication in the Customs Bulletin.


Virginia L. Brown

Previous Ruling Next Ruling

See also: