Maximizer machine; packing costs

HQ 548286 March 17, 2003 RR:IT:VA 548286 MMC CATEGORY: Valuation Margaret L. Parker Customs Administrator Michelin North America, Inc. P.O. Box 19001 Greenville, SC 29602 RE: Maximizer machine; packing costs Dear Ms. Parker: This is in response to your February 18, 2003 letter in which you request a prospective ruling concerning the appraisement of tires. Specifically, you have requested a ruling on the dutiable status of a "Maximizer" machine provided free of charge by a Michelin North America (MNA) to a foreign vendor for tires imported into the United States. FACTS: MNA operating under the state of New York law, is a part of the Group Michelin of Clermont Ferrand, France. MNA is considering providing a machine known as the "Maximizer" to a foreign supplier free of charge. The "Maximizer" consists of a compressing unit and a conveyor system to aid in the loading of tires into containers. People identified as "tire loaders" manually retrieve tires from the conveyor unit and stack them into an interlaced configuration. As one complete interlaced row across the width of the container is finished, the "Maximizer" machine presses down on the stacks. This allows for 2 or 3 extra layers of tires to be loaded. The technique yields transportation cost savings, as the per container ocean freight charge is the same regardless of the number of tires loaded into the container. A diagram of the "Maximizer" was provided. ISSUE: Whether the cost of the "Maximizer" should be added to the price actually paid or payable for the imported tires.  LAW AND ANALYSIS: Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. §1401a). The preferred method of appraisement under the TAA is transaction value, defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus five statutorily enumerated additions. 19 U.S.C. § 1401a(b)(1). Of the five additions to the price actually paid or payable, only two are relevant for purposes of this ruling. The first is the value, apportioned as appropriate, of any assist and the packing costs incurred by the buyer with respect to the imported merchandise. The term "assist" is defined in section 402(h) of the TAA 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: (i) 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. (iv) 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. However, the "Maximizer" is not incorporated, used or consumed in the production of the tires nor is it engineering or design work. Consequently, the "Maximizer" does not meet the definition of an assist. The second relevant addition is for packing costs. The term "packing costs" is defined by section 402(h) of the TAA. It provides in pertinent part: (3) The term "packing costs" means 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. 19 U.S.C. § 1401a(h)(3) In Headquarters Ruling Letter (HRL) 544624 dated April 11, 1991, the issue was whether certain equipment including but not limited to cementing and folding machines constituted assists. While it was held that they were not assists, the ruling clearly indicates that " [i]f they are used in the packing of the merchandise for exportation to the U.S., they should be included as part of transaction value pursuant to section 402(b)(1)(A) of the TAA as packing costs incurred by the buyer with respect to the imported merchandise. You argue that tires are generally shipped without any external packaging except for a paper or shrink wrap coating and are therefore in a "condition ready for shipment to the U.S." before being placed in an ocean container. As a result you contend that the use of the "Maximizer" would not constitute a dutiable packing cost. Your analysis however, does not take into account that the definition of packing costs is a broad definition that includes more than simply packing and packaging materials. Rather the definition includes the labor and materials used in placing the merchandise in condition ready for shipment to the U.S. In this case the tires are not ready for shipment to the U.S. until placed in the container. According to your description the "Maximizer's" function is to aid in the loading of tires into containers. Based on this description and the provided diagram the "Maximizer" is an item which MNA has seen fit to use in order to pack the merchandise in a certain condition for its shipment to the U.S. Accordingly, the cost of the "Maximizer" should be added to the price actually paid or payable of the imported tires. HOLDING: The "Maximizer's" function is to aid in the loading of tires into containers, which are then shipped to the U.S. As such, the Maximizer" is considered " part of the packing costs for the imported merchandise within the meaning of section 402(h)(3) of the TAA. Accordingly, the cost of the Maximizer should be added to the price actually paid or payable of the imported tires. Sincerely, Virginia L. Brown, Chief, Value Branch