HQ H010951 - Computed value; treatment of global accounting services - United States International Trade Commision Rulings

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HQ H010951

September 21, 2007

VAL-2 OT:RR:CTF:VS H010951 KSG

CATEGORY: VALUATION

James L. Sawyer, Esq.
Drinker Biddle Gardner Carton
191 North Wacker Drive
Suite 3700
Chicago, IL 60606-1698

RE: Computed value; treatment of global accounting services

Dear Mr. Sawyer:

This is in response to your letter dated May 7, 2007, requesting a binding ruling on behalf of Honeywell International, Inc., and its Automation and Control Solutions Strategic Business Unit (“ACS”) regarding the treatment of global accounting services performed by a maquiladora facility owned by Honeywell. You requested confidential treatment for the exhibits attached to your submission, which we have granted.

FACTS:

For the purposes of this ruling, you have asked us to assume that computed value is the proper method of assessment.

Honeywell ACS owns and operates a maquiladora operation in Ciudad de Juarez, Mexico, Ademco de Juarez. The maquiladora was established to assemble security and alarm devices and related accessories which are then imported into the U.S. The maquiladora has expanded and now provides certain accounting and financial services, including the management of ACS’ global accounts payable function for domestic and foreign production. You state that such services are unrelated to the assembly operations of the imported goods and are tracked and monitored separately as a defined expense on the company’s books and segregated from the general expenses incurred in support of Ademco’s assembly operations. On a monthly basis, all of the global accounting services provided by Ademco in Mexico will be charged to ACS in the U.S. through inter-company billings in accordance with the costs and expenses tracked on Ademco’s books. You state that global accounts payable services are not costs usually reflected In sales of merchandise of the same class or kind as the imported product and are tracked and maintained separately on the foreign assembler’s books in accordance with Mexican Generally Accepted Accounting Principles as described in a letter prepared by the outside Mexican auditor.

ISSUE:

Whether the cost of global accounting services must be included in the computed value calculation for goods assembled at the maquiladora?

LAW AND ANALYSIS:

Under the computed value method, merchandise is appraised on the basis of the materials and processing costs incurred in the production of imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. See 19 U.S.C. 1401a(e)(1). We are assuming for the purposes of this ruling that computed value is the appropriate basis of appraisement in this case.

Pursuant to 19 U.S.C. 1401a(e), computed value is the sum of—
the cost or value of materials and the fabrication and other processing of any kind employed in the production of the imported merchandise; an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by the producers in the country of exportation for export to the United States; any assist, if its value is not included under subparagraph (A) or (B); and the packing costs.

You state that the costs and expenses of the global accounting services do not relate to the cost or value of materials, fabrication or any other processing employed in the production of the imported goods. We agree and find that the costs and expenses of global accounting services do not relate to the cost or value of materials, fabrication or any other processing employed in the production of the imported goods.

The issue presented is whether the costs and expenses of global accounting services would be included in an amount for general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by the producers in the country of exportation for export to the U.S.

The Statement of Administrative Action, adopted by Congress with the passage of the Trade Agreements Act of 1979, provides that with respect to computed value:
the ‘amount for profit and general expenses’ will be determined on the basis of information supplied by, or on behalf of, the producer and will be based upon the commercial accounts of the producer, provided that such accounts are consistent with the generally accepted accounting principles applied in the country where the goods are produced and unless the figures provided are inconsistent with those usually reflected in sales of merchandise, of the same class or kind as the imported merchandise, that are made by producers in the country of exportation for export to the United States.

You submitted a letter from an outside auditor stating that the global accounting services are tracked and maintained separately on the books of your company in accordance with the Generally Accepted Accounting Principles in Mexico.

Further, you state that the costs and expenses of the global accounting services are not costs included in general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by producers in Mexico.

In Headquarters Ruling Letter (“HRL”) 546801, dated November 5, 1998, CBP held that wearing apparel valued based on computed value properly excluded non-production expenses in accordance with the applicable GAAP, and that such costs such as management services, accounting services and legal services were not assists.

Based on the principles set forth in HRL 546801, the written statement by the independent Mexican auditor that the costs and expenses related to the global accounts payable function are tracked and recorded separately in its own account in accordance with Mexican GAAP and the lack of evidence that the amount is inconsistent with the amount for general expenses and profit usually reflected in sales merchandise for the same class or kind, the amount for costs and expenses of the global accounts payable function should not be included in determining the computed value of the imported merchandise.

The final issue is whether the cost and expense of the global accounts payable function are assists. If such costs and expenses are not deemed to be assists, such costs are properly excludable from the calculation of the computed value of imported alarms.

The term “Assist” is defined in19 U.S.C. 1401a(h)(1)(A) as follows:

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:

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. 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.

CBP held in HRL 542122, dated September 4,1980, that management services, accounting services, legal services and other services related to imported merchandise rendered abroad or in the U.S. are not assists under 19 U.S.C. 1401a(h). As the costs and expenses related to global accounting payable services appear to be of the same type of non-production expenses cited in HRL 542122, we find that they are not includable within the definition of an assist. Accordingly, the value of such costs and expenses should not be included in the computed value of the imported security and alarm devices.

HOLDING:

The determination of computed value for the imported security and alarm devices should not include the costs and expenses for global accounts payable services in accordance with the applicable GAAP for the country of exportation.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

Monika R. Brenner
Chief, Valuation & Special Programs Branch

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