HQ 545462: Application for Further Review of Protest No. 3801-93-102724; Dutiability of Design Costs

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 545462

                         August 9, 1994

VAL CO:R:C:V 545462 LPF

CATEGORY: Valuation

District Director
U.S. Customs Service
477 Michigan Avenue - Room 200
Detroit, MI 48226

RE: Application for Further Review of Protest No. 3801-93-102724;
    Dutiability of Design Costs

Dear Sir:

     This is a decision on an application for further review of a
protest filed July 21, 1993, against your decision concerning the
appraisement of hemming dies.  The entries were liquidated on
April 23, 1993 and April 30, 1993.  We regret the delay in
responding.

FACTS:

     On January 8, 12, and 18, 1993, Tesco Engineering, Inc.
("Tesco"), a U.S. corporation, imported hemming dies at Detroit,
MI.  Tesco is 70 percent owned by Hirotec Corporation Japan
("Hirotec"), a seller/manufacturer, 20 percent owned by Itochu
Corporation ("Itochu"), a Japanese trading agent, and 5 percent
owned by Itochu International, Inc.  Tesco was established for
the purpose of developing and marketing industrial tooling and
assembly equipment in the U.S.

     The submitted documents include a purchase order, dated
August 14, 1992, from Chrysler Corporation of Detroit to
Tesco/Hirotec of Detroit for the latter to design, build, and
tryout six hydraulic press hemming systems for front and rear
doors, a deck lid, and a hood, in accordance with specifications. 
A purchase order, dated November 23, 1992, from Tesco to Itochu
for numerous hemming dies also is provided in the file.  

     It is our understanding from the information provided, 
confirmed through a discussion with the concerned import
specialist at Detroit, that Tesco carried out the design and
build work for the hemming presses through their own in-house
capabilities, but out-sourced the hemming dies because they lack
the in-house capabilities to design and build such dies.  Hence,
Tesco placed an order with Itochu to supply the hemming dies,
actually designed and built by Hirotec.

                               -2-

     Apparently, the designs for the hemming dies are created and
produced by Hirtoec.  There is no indication that Tesco supplies
the designs, in any manner, to Itochu or Hirotec.  Instead, it
appears that through Itochu, Tesco orders the hemming dies
designed and built by Hirotec.  Further, the facts as presented
provide no indication that the buyer made any additional payment
to the seller concerning the design of the hemming dies.    

     Upon reviewing the Chrysler-Tesco/Hirotec and Tesco-Itochu
purchase orders, your office decided that the design cost of the
dies had not been added to the transaction value of the
merchandise.  Because your office believes the design costs are
dutiable as assists, you appraised the merchandise by adding the
design costs to the price paid by Tesco.

     Conversely, Tesco submits that all costs, including the
design costs, were included in the invoice price of each
consumption entry.  The file includes a letter dated July 20,
1993, in this regard.  Accordingly, the protestant claims that
the appraised value should be the price paid by Tesco to Itochu,
without any additions. 

ISSUE:

     Whether the costs for designing the hemming dies are
considered assists to be added to the price actually paid or
payable for the imported merchandise when no design work is
provided by the buyer.

LAW AND ANALYSIS:

     Although it appears that Tesco and Itochu are related
parties pursuant to section 402(g) of the TAA, because that
particular issue currently is not before us, this decision will
not address the acceptability of the related party pricing. 
Nonetheless, the preferred method 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), codified at 19
U.S.C. 1401a.  Section 402(b)(1) of the TAA provides, in
pertinent part, that the transaction value of imported
merchandise is the "price actually paid or payable for the
merchandise when sold for exportation to the United States" plus
enumerated statutory additions, including the value, apportioned
as appropriate, of any assist.  19 U.S.C. 1401a(b)(1). 

     The "price actually paid or payable" is defined in section
402(b)(4)(A) of the TAA as the "total payment (whether direct or
indirect, and exclusive of any costs, charges, or expenses
incurred for transportation, insurance, and related services
incident to the international shipment of the merchandise...)
made, or to be made, for the imported merchandise by the buyer
to, or for the benefit of, the seller."


                               -3-

     With regard to the design costs, your office contends that
the costs incurred for designing the hemming dies constitute
assists necessary to produce the imported merchandise.  We note
that section 402(h)(1)(A) of the TAA provides, in pertinent part,
as follows:

     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 the sale for export to 
     the United States of the 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.

     We reiterate that, in this case, the designs for the hemming
dies are created and produced by Hirotec, the seller/
manufacturer, and there is no indication that Tesco supplies the
designs, in any manner, to Itochu or Hirotec.  Because the facts
indicate that the designs are not supplied (directly or
indirectly) by Tesco, the buyer of the imported merchandise, they
cannot constitute assists.  Furthermore, because there is no
indication that the buyer made any additional payment to the
seller concerning the design of the hemming dies, the price
actually paid or payable appears to embody the total payment by
Tesco to Itochu for the imported merchandise.  

HOLDING:

     Based on the facts provided, you are directed to grant this
protest.  No assist appears to have been provided by the buyer of
the imported merchandise.  Additionally, the price actually paid
or payable appears to embody the total payment by Tesco to Itochu
for the imported merchandise.  A copy of this decision with the
Form 19 should be sent to the protestant.  

     In accordance with Section 3A(11)(b) of Customs Directive
099 3550-065, dated August 4, 1993, Subject: Revised Protest
Directive, this decision should be mailed by your office to the
protestant no later than 60 days from the date of this letter. 
Any reliquidation of the entry in accordance with the decision
must be accomplished prior to mailing of the decision.  Sixty
days from the date of the decision, 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 to the 






                               -4-

public via the Diskette Subscription Service, Lexis, the Freedom
of Information Act and other public access channels.

                                   Sincerely,




                                   John Durant, Director
                                   Commercial Rulings Division