HQ 555587: Application for Further Review of Protest No. 2704-86-002861, contesting the denial of TSUS item 807.00 treatment to, and reappraisement of, multiple entries of certain amplifier assemblies from Taiwan

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 555587

                        December 17, 1990

CLA-2 CO:R:C:V 555587 GRV/ML

CATEGORY:      CLASSIFICATION; VALUATION

TARIFF NO.:    9802.00.80

District Director of Customs
300 South Ferry Street
Terminal Island
San Pedro, CA 90731

RE:  Application for Further Review of Protest No.
     2704-86-002861, contesting the denial of TSUS item 807.00
     treatment to, and reappraisement of, multiple entries of
     certain amplifier assemblies from Taiwan

Dear Sir:

     The above-referenced protest contests your disallowance of
item 807.00, Tariff Schedules of the United States (TSUS),
treatment to, and reappraisement of, 44 entries of amplifier
assemblies imported by Measurement Systems Division (MSD) from
Taiwan during the period April, 1984, through June, 1985.  In
connection with this protest, we also considered an audit report
(7-85-FRD-008, dated October 31, 1985) prepared by the Regulatory
Audit Division, Pacific Region, concerning the transactions which
are the subject of this protest.

FACTS:

     MSD (hereinafter referred to as the "importer"), a
subsidiary of Gould, Inc., imported transconductive amplifiers
for measurement equipment from Ampex-Taiwan in Taiwan
(hereinafter referred to as the "assembler"), a subsidiary of
Ampex Inc., of California.  The audit report states that, of the
41 component parts necessary for the assembly of each amplifier,
30 were provided to the assembler by the importer.  The remaining
11 parts were obtained by the assembler from various sources
unknown to the importer.

     The merchandise subject to this protest was entered under
TSUS item 807.00, with allowances in duty claimed for the value
of all the components incorporated in the amplifiers.  The
entered value of the merchandise was based upon the price paid to
the assembler.  The entries were liquidated on April 11, 1986.
     In 1985, an audit was conducted by the Regulatory Audit
Division, Pacific Region, to verify that the information
submitted to Customs in support of these entries was current,
accurate and complete.  Records for the period April, 1984,
through June, 1985, were reviewed and revealed an underpayment of
duties for two reasons.  First, it was determined that the
imported amplifiers did not qualify for the partial duty
exemption under TSUS item 807.00, because adequate records and
documentation to substantiate the claims had not been maintained.
Second, it was determined that the importer had understated the
appraised value of the imports due to the failure to include the
value of certain assists provided to the assembler by the
importer.

     Regarding the TSUS item 807.00 claims, the audit found that
the importer had claimed, on each entry, that all components in
the imported assemblies were manufactured in the U.S., even
though only 30 of the 41 components required to assemble an
amplifier unit were provided by the importer.  The report also
states the following:

     [The importer's] officials informed us that as the stock
     of parts shipped to [the assembler] runs out, procurement
     of all or the majority of components will be made in Taiwan.
     Because the components are commingled, the importer cannot
     identify upon entry the specific components that were U.S.
     manufactured and entitled to item 807 treatment.

Lastly, the importer failed to submit foreign assemblers
declarations.  For these reasons, the report recommended the
total disallowance of TSUS item 807.00 claims for the merchandise
covered by the audit.

     Although the audit report states that, with respect to three
entries filed in October, 1984, claims for duty-free treatment
were made under the Generalized System of Preferences (GSP), the
importer makes no such claim in the instant protest.  Therefore,
as no information has been provided in support of GSP treatment
for any of the entries subject to this protest, such treatment is
disallowed.

     Regarding the issue of assists, the audit revealed that the
importer sold components to the assembler at reduced cost (49%
less than the importer's cost of acquisition).  In addition, the
importer failed to declare certain tooling costs and a one-time
engineering charge for test fixtures.

     Regarding the TSUS item 807.00 claims, protestant states
that it has been unable to obtain assembler's declarations from
the assembler, but requests a waiver of the production of such
documents pursuant to section 10.24(e), Customs Regulations (19
CFR 10.24(e)).  Protestant further states inasmuch as it has
certificates indicating that certain components were manufactured
in the U.S., and that the quantities of these components of U.S.
origin were clearly in excess of the number required to complete
all the assemblies, TSUS item 807.00 treatment should be granted
to those components.  In addition, protestant argues that as
certain other components were certified to be produced in the
U.S. and were provided in quantities more than necessary for the
assembly of 50% of the merchandise imported during the audit
period, the partial duty exemption also should be granted for
such components.

     Regarding the issue of assists, protestant asserts that the
components which it provided to the assembler were not purchased
for sale, but rather were taken from its inventory and sold to
the assembler based on the estimated aggregate cost for procuring
such components on the world market.  Additionally, the importer
states that it did not charge the manufacturer the full cost of
the components because the importer did not want to disclose its
material costs to the assembler, for fear that the assembler
might have sought to charge a higher price for the assembly.

ISSUES:

I.   Whether the returned amplifier assemblies are entitled to
     the partial duty exemption under TSUS item 807.00.

II.  Whether materials provided by the importer to the
     manufacturer were a dutiable addition to the "price actually
     paid or payable."

LAW AND ANALYSIS:

I.   TSUS item 807.00 eligibility

      TSUS item 807.00 (now subheading 9802.00.80, Harmonized
Tariff Schedule of the United States) provides a partial duty
exemption for:

     [a]rticles assembled abroad in whole or in part of
     fabricated components, the product of the United
     States, which (a) were exported in condition ready for
     assembly without further fabrication, (b) have not lost
     their physical identity in such articles by change in
     form, shape, or otherwise, and (c) have not been
     advanced in value or improved in condition abroad
     except by being assembled and except by operations
     incidental to the assembly process such as cleaning,
     lubricating, and painting.
An article entered under this tariff provision is subject to a
duty upon the full value of the imported assembled article, less
the cost or value of U.S. components meeting these requirements
assembled therein, provided there has been compliance with the
documentation requirements of 19 CFR 10.24.

     Section 10.11, Customs Regulations (19 CFR 10.11) provides,
in part, that the "[a]llowance of an importer's claim is
dependent upon meeting the statutory requirements for the
exemption under item 807.00 and his complying with the
documentary requirements set forth in section 10.24."  According
to 19 CFR 10.24, an assembler's declaration shall be filed for
articles claimed to be subject to the exemption under TSUS item
807.00.

     With respect to protestant's request for a waiver of the
documentation requirements, 19 CFR 10.24(e) provides that:

     [w]hen the district director is satisfied that unusual
     circumstances make the production of either or both of the
     documents specified in paragraph (a) of this section, or of
     any of the information set forth therein, impractical and is
     further satisfied that the requirements of item 807.00, ...
     and related headnotes have been met, he may waive the
     production of such document(s) of information.

It is clear that the decision to grant a waiver rests solely with
the district director and that no such waiver has been granted
respecting the entries subject to this protest.

     Concerning the identification of U.S.-origin components in
the assembled amplifiers, in C.S.D. 82-43, 16 Cust.Bull. 748
(1982), we stated that under 19 CFR 10.24, TSUS item 807.00
allowances in duty may be granted only if the importer can
demonstrate, on an entry-by-entry basis, that those components
claimed to be products of the U.S. are, in fact, products of the
U.S.  According to 19 CFR 10.24, the importer and assembler are
required to establish reliable controls, including the strict
physical segregation of U.S. and foreign components and the
maintenance of any other records pertaining to the U.S.
components, so that the district director can identify, by audit
if necessary, the specific components of U.S. origin in
particular shipments which are entitled to the duty allowance.
Thus, we have taken the position that various accounting
procedures, such as the aggregate-quantity method or the cost-
ratio method, could not be used to support a claim under this
tariff provision under circumstances in which U.S. and foreign
components had been commingled in the foreign assembly operation
in such a way that the precise quantity and value of the U.S.
components in a given shipment could not be substantiated.  See
also, Headquarters Ruling Letters (HRLs) 555409 dated March 12,
1990 (abstracted as C.S.D. 90-71(4), 24 Cust.Bull. ___ (1990)),
and 071136 dated December 27, 1983.

      Accordingly, where U.S. components which would otherwise
qualify for TSUS item 807.00 treatment are commingled with
foreign-sourced components, such that the importer is unable to
substantiate, for each and every entry, the precise quantity and
identity of the U.S. components entitled to the duty exemption,
the exemption is foreclosed.

     The audit revealed that, with respect to "all or a majority"
of the components needed to assemble a particular amplifier,
foreign-sourced components were commingled with U.S.-sourced
components.  Although protestant has provided certificates
indicating that certain of the components provided to the
assembler were manufactured in the U.S., this documentation is
insufficient to establish, on an entry-by entry basis, the
precise quantity and identity of the U.S.-made components
incorporated in the imported amplifiers.  For this reason, as
well as the failure to file the required assembler's
declarations, it is our opinion that the amplifiers covered by
the entries subject to this protest are not entitled to the
partial duty exemption under TSUS item 807.00.

II.  "Assists"

     The primary basis of appraisement is transaction value
pursuant to section 402(b) of the Tariff Act of 1930, as amended
by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)).
Transaction value is defined as the "price actually paid or
payable for the imported merchandise when sold for exportation to
the United States," plus certain enumerated additions, one of
which is the value of any assists.  Section 402(h) of the TAA
provides, in relevant part, that:

     [t]he 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 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.

     Section 402(h)(1)(C)(i) provides that the value of an
assist that is available in the public domain is the cost of
obtaining copies of the assist.  The Statement of Administration
Action further provides that:

     [i]f the assist was acquired by the importer from an
     unrelated seller, the value of the assist is the cost of
     acquiring it.  If the element was produced by the importer
     or person related to him, its value would be the cost of
     producing it.  The value shall include transportation costs
     to the place of production.  (emphasis added).

     In the instant case, certain components were furnished by
the importer to the assembler at a reduced cost.  The  value of
the assist would be based upon the cost of acquisition since it
was acquired by the importer from an unrelated seller.  It is
irrelevant whether the importer could have paid less or more for
the assist had the importer purchased it at a later date or
supplied it to the assembler as part of the importer's current
inventory.  It is also irrelevant what the importer's intent was
for the "assist" at the time the importer acquired it.  The
statute clearly states that it is the cost of acquisition that
will be added to the "price actually paid or payable" for the
imported merchandise, plus the relevant transportation costs
necessary to the place of production.  Accordingly, an assist was
furnished to the extent that the cost was reduced from that of
the importer's actual cost.

     As regards the importer's contention that additional
components were supplied to the assembler in excess of that
needed to assemble the imported merchandise, if this is the case,
then the value of the assist may be apportioned over the quantity
of the merchandise that was produced using the assist.  This
assumes that the importer has evidence, or records kept in
accordance with generally accepted accounting principles,
supporting this contention.

HOLDING:

     On the basis of the record presented in this matter, it is
our opinion that the amplifier assemblies do not qualify for the
partial duty exemption under TSUS item 807.00 because protestant
is unable to establish, on an entry-by-entry basis, the precise
quantity and identity of U.S. components incorporated in the
returned amplifiers.

     Regarding the assists issue, it is our conclusion that the
components furnished by the importer to the assembler at a
reduced cost were "assists" and should be added to the "price
actually paid or payable" for the imported merchandise.  The
value of the assists will be the difference between the cost
charged to the manufacturer and the importer's cost of
acquisition, plus any relevant transportation costs necessary to
deliver the assists to the place of production.

     Accordingly, you are directed to deny the protest in full.
Please provide a copy of this decision to the protestant.

                              Sincerely,





                              John Durant, Director
                              Commercial Rulings Division