HQ 544736: Application for Further Review of Protest No. 3001-90- 000570; Computed Value; 402(e)

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 544736

                         August 26, 1992


VAL CO:R:C:V  544736 DPS

CATEGORY:  Valuation

District Director
U.S. Customs Service
909 First Avenue
Seattle, Washington  98174

RE:  Application for Further Review of Protest No. 3001-90-
     000570; Computed Value; 402(e)

Dear Sir:

     The subject protest and application for further review
concerns the appraisement of seven (7) entries of cable TV
converters assembled in Taiwan by xxxxxxxxxxxxxxxxxxxxxxxxx
(GIT), and imported to the United States by the protestant,
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (GIC).  

FACTS:

     GIC protests the liquidation, reliquidation, appraisement
and assessment of duties on seven entries of cable TV converters.
The Seattle District value advanced the entries based on
information received from the Regulatory Audit Division, New York
Region, regarding GIC's labor and overhead costs in repairing
defective converters (unexplained cost variances), and its profit
calculations for the Taiwan operation.  This information was
gathered in the course of an audit covering the period from March
1, 1983 to February 28, 1984.  It was assumed that in the absence
of contrary information, the same pattern as described in the
audit report was continued from 1984 onward.  

     The merchandise was appraised in accordance with section
402(f) of the Tariff Act of 1930 as amended by the Trade
Agreements Act of 1979 (19 U.S.C. 1401a(f); TAA) on the basis of
the computed value method set forth in section 402(e) of the TAA,
with adjustments for certain labor costs (repair labor) and
profit.  The protestant disputes Customs adjustments to computed
value under  402(f), arguing that the computed value submissions
it made to Customs under  402(e) reflect proper appraisement of
the imported merchandise.  For the purpose of resolving this
protest, which focuses on the interpretation of the computed
value section of the statute, we have applied  402(e).

     Protestant further argues that the use of fiscal 1984 audit
findings have no relationship to entries made in fiscal 1986, and
that Customs had no legal or factual basis to appraise using such
information.  In sum, protestant claims that the audit findings
for fiscal 1984 have no applicability to 1985-1986 entries and,
therefore, are wholly without probative value.

     In addition to its arguments concerning the appraisal of the
protested entries, GIC argues that Customs reliquidation of six
of the 7 entries subject to this protest was untimely and
therefore, invalid and illegal.  Three of the subject entries
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
were originally liquidated on September 22, 1989.  These three
entries were subsequently reliquidated pursuant to 19 U.S.C. 1501
on January 5, 1990.  One entry, xxxxxxxxxxxxxxxxxxxx, was
originally liquidated on September 29, 1989, and subsequently
reliquidated pursuant to 19 U.S.C. 1501 on January 5, 1990.  Two
more entries, xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx were
originally liquidated on October 6, 1989, and reliquidated by
Customs under 19 U.S.C. 1501 on January 19, 1990.  Protestant
asserts that these six entries, all of which were reliquidated
more than 90 days after original liquidation, should be
reliquidated as entered in accordance with the original
liquidation.  

     Regardless of the determination on the timeliness of the
reliquidations, at least one of the seven entries subject to the
instant protest (xxxxxxxxxxxxxxxxxxxxxxxxxx) remains alive by the
protestant's own representations.  Accordingly, we shall address
the merits of the protest, after addressing the issue of the
validity of the reliquidations. 

ISSUES:

(1)  Whether the voluntary reliquidation under 19 U.S.C. 1501 of
6 of the 7 the entries being protested is voidable on the grounds
of untimely reliquidation.

(2)  Whether the profit figure utilized under the computed value
method of appraisement was properly determined for the subject
importations; and if not, how should it be calculated.

(3)  Whether consigned material should be included in the overall
cost of material to which the profit figure is applied.
     
(4)  Whether repair labor costs should be included in the
computed value calculation of the imported merchandise.






LAW AND ANALYSIS:

     The protested entries were reliquidated pursuant to 19
U.S.C.  1501, which provides that Customs may voluntarily
reliquidate an entry, with an increase or reduction in duties,
for any reason within 90 days of the original liquidation,
whether or not a protest has been filed.  With passage of the 90
day period, Customs authority to reliquidate with an increase
terminates.   

     As specified above, six of the seven protested entries were
reliquidated by Customs more than 90 days after original
liquidation.  These reliquidations by Customs were untimely and
therefore voidable.  An untimely reliquidation by Customs under
19 U.S.C.  1501 is not void, but rather merely voidable (see
Philip Morris v. United States, 716 F. Supp. 1479 (CIT 1989)
(affirmed in part and reversed in part in an unpublished decision
of the Court of Appeals for the Federal Circuit, 907 F.2d 158
(1990)), and cases cited therein, including Omni U.S.A., Inc. v.
United States, 840 F.2d 912 (Fed. Cir. 1988), cert. denied, 488
U.S. 817 (1988), rehearing denied, 488 U.S. 961 (1988)).  With
regard to the case under consideration, on April 2, 1990, GIC
filed its protest of Customs reliquidations of January 5, 1990,
and January 19, 1990.  Because six of the seven protested entries
were untimely reliquidated, and the protestant timely protested
these reliquidations, they are voided and the protest is granted
in this regard.  However, the seventh entry, number 3029-86-
116609-9, originally liquidated on December 12, 1989,
reliquidated by Customs pursuant to 19 U.S.C.  1501 on January
19, 1990, was timely reliquidated.  Accordingly we shall address
the remaining substantive issues as they relate to that entry
within the context of the subject protest.

Computed Value Generally

     Section 402(e) of the Tariff Act of 1930 as amended by the
Trade Agreements Act of 1979 (19 U.S.C.  1401a(e); TAA) provides:

     (1) The computed value of imported merchandise is the
     sum of:

          (A) the cost or value of the materials and
          the fabrication and other processing of any
          kind employed in the production of the
          imported merchandise;

          (B) 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;

          (C) any assist, if its value is not included
          under subparagraph (A) or (B); and

          (D) the packing costs.


Profit Figure

     With regard to profit and general expense figures under
computed value,  402(e)(2)(B) states:

     (B) the amount for profit and general expenses under
     paragraph (1)(B) shall be based upon the producer's
     profits and expenses, unless the producer's profits and
     expenses 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, in which case the amount under paragraph (1)(B)
     shall be based on the usual profit and general expenses
     of such producers in such sales as determined from
     sufficient information.

Here, information in the file does not reflect that profit and
general expenses are taken together.  To the extent that the
subject protest addresses profit, we shall focus on that issue. 
However, as stated in section 152.106(c) of the Customs
Regulations, we must recognize:

     The amount for profit and general expenses will be
     taken as a whole.  If the producer's profit figure is
     low and general expenses high, those figures taken
     together nevertheless may be consistent with those
     usually reflected in sales of imported merchandise of
     the same class or kind.

     The audit report and Seattle's appraisement focused on the
profit component.  The audit report concluded that the actual
profit figure of 5 percent reflected in GIT's books for 1984 was
too low.  In reaching this conclusion, it relied on its analysis
of profit factors affecting actual GIC profit for fiscal year
1984.  The auditors found that GIC's earned profit from their
Broadband Communications operations which include Jerrold
Converter Products as stated in General Instrument's Annual
Report for Fiscal Year 1984, was 15.26%.  In addition, a special
economic study on profits of far east companies on Asian Economic
Industries Overseas for 1984, made by U.S. Government sources,
revealed that high-volume high-tech electronic components such as
semi-conductors, monitors, printed circuits and keyboards were
realizing a 15% to 20% profit rate at companies located in
Taiwan, Hong Kong and Korea.  Based on this information, the
auditors recommended a 15% profit rate for GIC's far east cost
submissions.  The Seattle District rate advanced the protestant's
computed value submission to reflect a 15% profit figure.

     The protestant argues that the audit report and Seattle
District's reliance thereon with regard to the 15% profit figure
is improper, both factually and legally.  It contends that the
profits of companies in other countries which produce merchandise
of a different class or kind than that undergoing appraisement
cannot be used as a basis for determining profits of a Taiwan
company.  The profit margins of companies in Singapore, Hong Kong
and Korea are inapplicable to Taiwan companies, counsel argues,
particularly where there is no indication that the companies are
even engaged in the production of the same class or kind of
product.  Counsel states that the subject television cable
converters which GIT produces in Taiwan are of a different class
or kind of merchandise than the exemplars in the study cited by
the auditors.

     For the purposes of determining "usual profit" under
computed value, the TAA and accompanying regulations recognize
the class or kind of merchandise to be examined is limited to the
narrowest group.  Section 152.106(e) of the Customs Regulations
(19 C.F.R.  152.106(e)) provides:

     Sales for export to the United States of the narrowest
     group or range of imported merchandise, including the
     merchandise being appraised, will be examined to
     determine usual profit of the same class or kind.  For
     the purpose of computed value, merchandise must be from
     the same country as the merchandise being appraised.

The question of whether the producer's profit and general
expenses are consistent with the profit and general expenses
usually reflected by producers in the country of exportation in
sales of merchandise of the same class or kind is a question of
fact which will vary depending on the particular point in issue. 
Our authority for rejecting figures relating to the producer's
profits and general expenses is limited under  402(e)(2)(B) of
the TAA to those situations where such figures "are inconsistent
with those usually reflected in sales of merchandise of the same
class or kind..." (emphasis added).

     We recognize that the protestant's computed value submission
for the protested 1986 entries reflects a profit figure of 10%,
not 5% as it did in 1984, the period audited.  Thus, the issue is
whether under computed value, we accept 10% or 15% as the usual
profit figure.  In support of its claimed figure of 10%,
protestant has submitted a letter dated March 14, 1990, from T.N.
Soong & Co., a Taiwanese certified public accounting firm.
Soong's letter indicates that for 1986 there was a range of gross
profit of companies in the electronics industry in Taiwan which
export electronic products back to their respective parent or
affiliate companies in the United States, ranging from 4.9
percent to 11.4 percent.  

     Upon review of the competing studies, and assuming their
validity, we believe the Taiwanese CPA opinion concerning 1986
gross profits for electronic product exports from Taiwan more
narrowly covers the subject merchandise for the period at issue
and class/kind of merchandise than the 1984 Pacific Rim study
relied on in the audit report.  Accordingly, subject to our
comments pertaining to general expenses, we conclude that a
profit figure of 10% should be utilized when determining computed
value of the subject 1986 entry.

Application of Profit Figure to Consigned Material

     The next issue requiring resolution is whether the profit
figure should be applied to (1) only the costs incurred by the
Taiwanese assembler, GIT, as reflected in its books, which
includes labor and overhead in Taiwan; or (2) the labor and
overhead costs in (1) plus the cost of the materials, which are
consigned by GIC to GIT, not carried on GIT's books as an
expense.  While there is no question that the cost of the
consigned materials is to be included in the computed value
appraisement of the subject merchandise, which it was in this
case, there is a question as to whether profit should be
calculated on the value of those materials and included in the
assembler's computed value calculation.

     In determining computed value, the statute requires that we
take into account the costs employed in the production of the
merchandise, which costs include: labor, materials, general
expenses, profit, assists and packing costs.  Seattle's
appraisement of the subject entries applied the profit percentage
of 15 percent to the consigned materials used in the repair and
assembly of converters by GIT.  The protestant argues that profit
is not an element which may be added to the value of an assist. 
Generally, the value of an assist is its cost of acquisition or,
if the assist is produced by a person related to the buyer, its
value is its cost of production.  See  152.103(d)(2) Customs
Regulations, TAA No. 33 (HRL 542324, dated June 22 1981) and TAA
No. 44 (HRL 542658, dated January 12, 1982).  As in TAA No. 44
with regard to accounting services carried on a parent's books,
we have no basis to attribute profit to the cost of materials
which are carried on GIC's books to GIT.  Accordingly, the profit
figure should only be applied to the costs incurred by GIT,
unless it can be shown that GIT actually purchases the materials
it assembles.




Repair Labor Costs

     Based on the audit results, the protestant failed to report
certain repair labor and material costs incurred by GIT as a
result of various defects in parts imported during fiscal 1984. 
In light of this information, Seattle added the amount of
$10,398,000.00 to the protested 1986 entries to make up for the
deficiency which occurred in 1984.  

     While we believe there exists a valid legal and factual
basis to include this amount in GIC's appraised value for entries
made during the audit period, it is inappropriate to add this
amount to the subject 1986 entries.


HOLDING:

     In accordance with the rationale set forth above, you are
hereby directed to grant the subject protest with respect to all
seven entries.  Our conclusions with respect to the enumerated
issues are as follows:

(1)  Customs voluntary reliquidation of the subject entries is
voidable with regard to the six entries that were untimely
reliquidated;

(2)  In appraising the subject entries under computed value, the
profit figure to be utilized is 10 percent;

(3)  Under the circumstances presented here, the cost of material
consigned to GIT should not be included in the overall cost
figure to which GIT's profit is applied; and

(4)  Only those repair labor costs directly associated with the
subject entries should be included in the computed value
calculation of the imported merchandise.

A copy of this decision should be attached to the Customs Form 19
and mailed to the protestant as part of the notice of action on
the protest.


                              Sincerely,



                              John Durant, Director
                              Commercial Rulings Division