HQ 545953: Application for Further Review of Protest No. 2304-94-100298; Computed Value; Profit and General Expenses

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 545953

                          August 3, 1995


VAL R:C:V  545953 EK

CATEGORY:  Valuation

District Director
Laredo, Texas

RE:  Application for Further Review of Protest No. 2304-94-100298; Computed Value; 
        Profit and General Expenses

Dear Madam:

     This is in response to the application for further review of the protest referenced above.  

FACTS:

     The imported merchandise in question was entered and appraised pursuant to the
computed value basis of valuation, section 402(e) of the Tariff Act of 1930, as amended by the
Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(e)).  The importer agrees that the use of
computed value is appropriate in appraising the merchandise.  However, the dispute concerns
certain elements that have been included that the importer claims should not be part of the
computed value.  

     Specifically, the importer is disputing the inclusion in computed value of the following
items:  wages paid to U.S. resident employees who perform management services at the assembly
facility in Mexico; U.S. Customs duties paid upon the importation of the footwear uppers into the
United States; U.S. freight paid for the transport of the merchandise from the U.S./Mexican
border to Lumberton, North Carolina.  All three of these expenses are incurred and recorded in
the related Mexican assembler's accounting records as expenses.  

ISSUE:

     Whether the items specified should be included in the calculation of computed value for
merchandise imported into the United States.  





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LAW AND ANALYSIS:

      Computed value, pursuant to section 402(e)(1)(A) - (D) of the TAA, is equal to 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.  

     The Statement of Administrative Action provides that with respect to computed value: 

     [t]he 'amount for profit and general expenses' will be determined
     on the basis of information supplied by, or on behalf of, the producer
     and will be based upon the commercial accounts of the producer,
     provided that such accounts are consistent with the generally
     accepted accounting principles applied in the country where the
     goods are produced and unless the figures provided 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.  (Statute)  

     In Campbell Soup Co., Inc. vs. United States, Slip Op. 94-80, May 16, 1994, the court
held that Customs properly disallowed a deduction from general expenses, in determining
computed value, an amount claimed for taxed paid by the importer's subsidiary and subsequently
rebated under a tax-rebate program.  The court stated: 
" . . . the plain language of [section] 1401a(e)(2)(B) does not single out any type of profit or
general expense that Customs must exclude from its calculations".   In addition, the Court agreed
with Customs in determining that inland freight costs are properly regarded as selling expenses
that contributed to the subsidiary's "profit and general expenses" under computed value.  

     In addition, in HQ 544862 dated January 3, 1994, the importer claimed certain expenses
as non-dutiable under computed value because the importer alleged that these expenses related to
export activities which occurred after the goods were packed 





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and ready for shipment to the United States.  These expenses were included in the foreign
assembler's/manufacturer's general expenses represented by Customs Form 247.  

     Therefore, all of the foreign assembler's general expenses are to be included in calculating
the amount for "profit and general expenses"  in determining computed value, unless the amount
for profit and general expenses is found to be inconsistent with the amount for profit and general
expenses usually reflected in sales of 
merchandise of the same class or kind.  In this case, there is no evidence to indicate that the
amount for "profit and general expenses"  recorded on the foreign assembler's accounting records
is inconsistent with the amount equal to that usually reflected in sales of merchandise of the same
class or kind as the imported merchandise.  

     With regard to the wages paid to the U.S. resident employees performing management
services at the assembly plant, these payments are reflected on the Mexican assembler's
accounting records as an expense.  These payments are part of the "general expenses" which are
based upon the commercial records of the producer.  There is no authority to exclude these
expenses from the computed value of the imported merchandise.   Since these expenses are
covered by section 402(e)(1)(B), we do not reach the assist issue.  

     With respect to the U.S. Customs duties, the duties paid are reflected as expenses incurred
and recorded by the foreign facility.  Again, no authority exists to exclude these from "general
expenses" in calculating computed value.       

     Finally, the U.S. freight costs incurred in transporting the merchandise from the
U.S./Mexican border to Lumberton, North Carolina, are carried on the foreign assembler's
accounting records as well.  These expenses are "general expenses" of the producer and are to be
included in the computed value of the imported merchandise.  


HOLDING:

     The appraising officer correctly calculated the computed value of the merchandise by
including the expenses at issue.  You are directed to DENY this protest in full.  In accordance
with Section 3A(11)(b) of the 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.  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 



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

                              Sincerely,




                              John Durant, Director
                              Commercial Rulings Division