Internal Advice; 9801.00.10; U.S. origin packing; 19 U.S.C. §140la(b)(l)(A); transaction value

HQ W547387 June 23, 1999 RR:IT:VA W547387 MMC CATEGORY: Valuation Mr. Peter J. Battaglioli, Field Director Regulatory Audit Division U.S. Customs Service 10 Causeway Street, #80 I Boston, MA 02222 RE: Internal Advice; 9801.00.10; U.S. origin packing; 19 U.S.C. §140la(b)(l)(A); transaction value Dear Mr. Battaglioli: This is in regard to a memorandum from the Regulatory Audit Division dated May 26, 1999, forwarding your request for Internal Advice dated April 14, 1999. The issue raised is whether international freight costs from the U.S. to foreign vendors for U.S. origin packing are part of the appraised value of the U.S. origin packing or the imported shoes. FACTS: Rockport Co. (Rockport) buys shoes from various foreign vendors. The various foreign vendors (sellers) purchase shoe boxes and tissue from Shoe Carton Corporation, located in Methuen, MA which are then shipped overseas to them. At the time of importation into the U.S., Rockport classifies the boxes and tissue under subheading 9801.00.10, of the Harmonized Tariff Schedule of the United States (HTSUS), and the shoes in the appropriate heading of Chapter 64 of the HTSUS. Rockport declares as part of the subheading 9801.00.10, HTSUS, value their vendor's costs for the boxes, and tissue papers and international freight for shipping the boxes and tissue from the U.S. to the vendor's production facilities. The actual amounts are calculated on a unit basis and deducted from the prices of the imported shoes. ISSUE: Whether international freight costs from the U.S. to foreign vendors for U.S. origin packing are part of the appraised value of the U.S. origin packing or the imported shoes. 2 LAW AND ANALYSIS: Merchandise imported into the United States is appraised in accordance with §402 of the TAA (19 U.S.C. §1401a). The preferred method of appraisement is transaction value defined as "the price actually paid or payable for the [imported] merchandise when sold for exportation to the United States," plus certain enumerated additions, including the packing costs incurred by the buyer with respect to the imported merchandise. 19 U.S.C. §1401a(b) (l)(A). Generally, foreign packing material is classified with imported merchandise pursuant to GRI 5(b), HTSUS (provided it meets the qualifications set out in GRI 5(b), HTSUS). However, in Headquarters Ruling Letter (HRL) 544667 dated July 30, 1997, we stated, in pertinent part, that: With regard to determining appraised value, the principle that imported merchandise be appraised in accordance with its classification applies. Thus, where American packaging is classified under subheading 9801.00.10, HTSUS, and the merchandise packed in the American packaging is classified in a subheading within the nomenclature between Chapters 1 and 97, no authority exists to combine the respective appraised values. Because the packaging and merchandise are treated as separately classifiable entities, their appraised values are separate…. As such, U.S. packing materials or packing containers which are classifiable in subheading 9801.00.10, HTSUS, are separately classified from the imported merchandise contained therein. Since the items are separately classified, they are separately appraised. Therefore, the value of the U.S. boxes and tissue, is not included in the appraised value of the imported merchandise, i.e., shoes. The question remains however, whether the international freight costs for the shipment of the U.S. origin packing from the U.S. to foreign vendors are part of the appraised value of the U.S. origin packing or the shoes. It is our position that the international freight costs for the shipment of the U.S. origin packing from the U.S. to foreign vendors are part of the appraised value of the U.S. origin packing. The U.S. origin packing is separately appraised, and the freight costs are ones more closely associated with the U.S. origin packing, not the shoes. Furthermore, based on the discussion in your memorandum, it appears that the evidence submitted to you by the U.S. buyer, indicates that the subject freight costs are solely related to the value of the U.S. origin packing. As such, those costs are considered a part of the appraised value of the U.S. origin packing. 3 Finally, you indicate that pursuant to the Customs Regulations, these type of freight costs are disallowed in instances where goods are classifiable in subheading 9802.00.80, HTSUS, and that the regulations are silent as to such costs for goods classifiable in subheading 9801.00.10, HTSUS. The tariff specifically directs that articles classifiable under 9802.00.80, HTSUS, are subject to a duty upon the full value of the imported article less the cost or value of such products of the United States. Furthermore, U.S. Note 4 of Subchapter II, states, in pertinent part, that: ... (a) The value of the products of the United States assembled into the imported article shall be: The cost of such products at the time of the last purchase; or (ii) If no charge is made, the value of such products at the time of the shipment for exportation as set out in the invoice and entry papers; except that, if the appraiser concludes that the amount so set out does not represent a reasonable cost or value, then the value of such products shall be determined in accordance with section 402 of the Tariff Act of 1930, as amended. As the subject costs would be incurred after the time of purchase or exportation, and do not meet the exception provided for, they would not be included in the value of an article classifiable under subheading 9802.00.80, HTSUS. With regard to subheading 9801.00.10, HTSUS, there is no reference to §402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), in either subheading 9801.00.10, HTSUS, or the subchapter notes thereto. In the absence of such direction, it is appropriate to value articles classifiable in subheading 9801.00.10, HTSUS, in accordance with §402 of the Tariff Act of 1930, as amended by the TAA, codified at 19 U.S.C. §140la. HOLDING: The U.S. origin packing which is classified in subheading 9801.00.10, HTSUS, is separately valued. Based on the evidence presented, it appears that the subject freight costs are solely related to the value of the U.S. origin packing. As such, those costs are considered a part of the value of the U.S. origin packing. 4 This decision should be mailed by your office to the internal advice requester no later than 60 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 informational Act and other public access channels. Sincerely, Thomas L. Lobred Chief, Valuation Branch