HQ 544834: Internal Advice Regarding the "Value of Materials" Under the U.S./Canada Free Trade Agreement

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 544834

                              December 3, 1991


VAL CO:R:V:C  544834 ML

CATEGORY:  Valuation

Regional Director
Regulatory Audit Division
Northeast Region

RE:  Internal Advice Regarding the "Value of Materials" Under the
     U.S./Canada Free Trade Agreement

Dear Mr. Battaglioli:

     This is in response to a request for internal advice, dated
October 24, 1991 (AUD-1-0:RA JMP), regarding the "value of
materials" which you believe are assists.  In order for you to
complete your calculation of the "50 percent test" you query as
to whether the value of materials includes "the price paid...and,
when not included in the price paid...the following costs...the
value of goods and services relating to all materials determined
in accordance with Subparagraph 1(b) of Article 8 of the
Agreement on Implementation of Article VII of the General
Agreement on Tariffs and Trade...."

FACTS:

     The first situation you describe involves non-territorial
transmissions sold by Company X, a foreign corporation located
in a non-CFTA country, to Company Z, a U.S. corporation, for
$600.  Company Z, then sold these transmissions to Company Y, a
Canadian corporation, for $300.  Company Y then assembled the
transmissions into automobiles which were subsequently imported
into the United States by Company P, the U.S. parent company of
Company Z.  You inquire as to whether an additional $300 should
be added to the value of the non-originating transmissions.

     The second situation you have presented relates to
transmissions sold by Company X directly to Company Y for $300.
You found that identical transmissions were sold by Company X to
Company Z for $600 and that prior to the implementation of the
CFTA, Company X still sold transmissions to Company Z for $600.
Therefore, it appears to you that the relationship of the three
parties has affected the price as between Company X and Company
Y.  You ask if a $300 assist should be added to the value of all
transmissions.


ISSUE:    Under the situations described above:

     (1)  Whether the price paid by the producer, Company Y, to
Company Z for transmissions must be accepted.

     (2)  Whether an addition should be made to the value of all
transmissions sold to Company Y.

LAW AND ANALYSIS:

     According to the US/Canada Free Trade Agreement, Article
304, the value of materials originating in the territory of
either Party or both Parties means the aggregate of:

     a)   the price paid by the producer of an exported good for
          materials originating in the territory of either Party
          or both Parties or for materials imported from a third
          country used or consumed in the production of such
          originating materials; and

     b)   when not included in that price, the following costs
          related thereto:
          i)   freight, insurance, packing and all other costs
               incurred in transporting any of the materials
               referred to in subparagraph (a) to the location of
               the producer;
          ii)  duties, taxes and brokerage fees on such materials
               paid in the territory of either Party or both
               Parties
          iii) the cost of waste or spoilage resulting from the
               use or consumption of such materials, less the
               value of renewable scrap or by-product; and
          iv)  the value of goods and services relating to such
               materials determined in accordance with
               subparagraph 1(b) of Article 8 of the Agreement on
               Implementation of Article VII of the General
               Agreement of Tariffs and Trade (GATT);

     Subparagraph 1(b) of Article 8 of the Agreement on
Implementation of Article VII of the GATT states in relevant
part, that in determining the customs value, there shall be added
to the price actually paid or payable for the imported goods:

     (b)  the value, apportioned as appropriate, of the following
          goods and services where supplied directly or
          indirectly by the buyer free of charge or at reduced
          cost for use in connection with the production and sale
          for export of the imported goods, to the extent that
          such value has not been included in the price actually
          paid or payable;

          (i)  materials, components, parts and similar items
               incorporated in the imported goods;... .

     Your first question was whether the $300 price paid by the
producer, Company Y, to Company Z for transmissions that Company
Z paid Company X $600 for must be accepted.  According to the
provisions cited above, an additional $300 would be added to the
price Company Y paid Company Z for the transmissions as the
transmissions were sold at reduced cost for use in connection
with the production of the imported goods.

     Your second inquiry was whether a $300 addition should be
made to the value of all transmissions sold to Company Y, even
when sold directly from Company X.  Consistent with Article 304
of the U.S./Canada Free Trade Agreement, in situations where
Company X sold transmissions directly to Company Y the price
paid by Company Y was the price of the materials.  That was
the price paid by the producer of the exported good for
materials imported from a third country used in the production of
the originating material.

HOLDING:

     (1)  An additional amount would be added to the price
Company Y paid Company Z for transmissions which were sold to
Company Z by Company X at a greater price, according to
subparagraph 1(b) of Article 8 of the Agreement on Implementation
of Article VII of the Gatt.

     (2) An addition would not be made for transmissions sold
directly to Company Y by Company X as the price paid by the
producer was the price of the materials, consistent with Article
304 of the U.S./Canada Free Trade Agreement.

                           Sincerely,




                                   Harvey B. Fox, Director
                                   Office of Regulations and
                                   Rulings