HQ 544241: Request for Ruling Regarding Appraisement of Watches

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 544241

                                  January 12, 1989

          CLA-2 CO:R:C:V  544241 EK

          CATEGORY:  Valuation

          ----------------
          -----------------
          -----------------------------

          RE:  Request for Ruling Regarding Appraisement of Watches

          Dear ---------:

                This is in response to your letter of August 30, 1988,
          requesting a ruling as to the proper appraisement, 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)), of watches sent
          abroad for repair and returned without the benefit of Item
          806.20, Tariff Schedules of the United States.  You also inquire
          as to the proper classification of the watches.  We have sent a
          copy of your letter to our General Classification Branch for an
          appropriate response.


          FACTS:

                You indicate that your company (importer) purchases and
          imports watches assembled in the Philippines by a related
          company.  The watches are then sold in the United States with the
          benefit of a warranty extended to your customers.

                Defective watches, both in and out of warranty, are
          returned to the importer for repair.  You state that the
          defective watches are then exported to importer's related party
          in the Philippines for repair and return.  The watches are
          repaired and then sold back to the importer at prices which cover
          the cost of repairs plus a mark-up.

                You state that at the present time, the watches are
          registered and exported under Customs supervision and are entered
          into the United States under Item 806.20, TSUS.  However, in the
          future, you will continue to have the watches repaired in the



















                                        - 2 -


          Philippines but without export registration and Customs
          supervision.  You are inquiring as to the proper method of
          appraisement of the watches.


          ISSUE:

                What is the proper method of appraising watches which are
          repaired abroad by a related party and subsequently returned to
          the United States?


          LAW AND ANALYSIS:

                You are correct in stating that the watches will be
          appraised pursuant to section 402 of the Tariff Act of 1930, as
          amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C.
          1401a).

                Transaction value, the preferred method of appraisement, is
          defined as the "price actually paid or payable" when the
          merchandise is sold for exportation to the United States.  See,
          section 402(b) of the TAA.  With respect to the situation you
          describe, section 152.103(a)(3) of the Customs Regulations
          [19 CFR 152.103(a)(3)] states the following:

                The price actually paid or payable may represent
                an amount for the assembly of imported merchandise
                in which the seller has no interest other than as
                the assembler.  The price actually paid or payable
                in that case will be calculated by the addition of
                the value of the components and required adjustments
                to form the basis for the transaction value.

                From the information you have provided, we cannot
          conclusively state that transaction value is inapplicable.  The
          initial decision as to whether transaction value is appropriate
          in a related party situation is made by the appraising officer.
          If the appraising officer is satisfied that the parties, albeit
          related, buy and sell from one another as if they are unrelated,
          then transaction value may be proper.  Furthermore, if the price
          closely approximates one of the "test values" which are
          enumerated in section 402(b)(2)(B) of the TAA, then transaction
          value is appropriate in appraising the merchandise.

                Assuming that transaction value is found to be improper in
          this case, then it is necessary to proceed sequentially through
          the remaining bases of appraisement provided for under the
          valuation statute.  












                                        - 3 -


                The next basis of appraisement, transaction value of
          identical or similar merchandise pursuant to section 402(c),
          appears to be inapplicable.  Based upon the facts as presented,
          it appears as if the repaired watches are neither identical nor
          similar to the watches which enter the United States brand new.

                With respect to deductive and computed value, sections
          402(d) and 402(e), respectively, the importer has a choice as to
          which method is to be utilized.  However, here, as you indicate,
          deductive value is not available since the watches are not "sold"
          in the United States.

                Computed value pursuant to section 402(e) of the TAA
          appears to be the appropriate method of appraisement in this
          case.  The computed value of imported merchandise is the sum
          of the cost or value of the materials and the fabrication and
          other processing, profit and general expenses of the producer,
          any assist, and packing costs.

                Under the circumstances presented, the defective watches
          acquired by the importer and sent to the related party for repair
          will be considered assists pursuant to section 402(h) of the TAA.
          The defective watches are given to the importer by the ultimate
          consumer in the United States due to a warranty provision
          extended by the manufacturer.  The importer is merely acting as
          an agent of the ultimate consumer in honoring the warranty
          provision on behalf of the manufacturer.  The value attributed to
          the defective watches in this case is equal to the costs incurred
          for transporting the watches to the related party's plant.

                For purposes of this response, we are assuming that to the
          extent applicable, the appraised value of the defective watches
          will include all statutory elements of computed value.  Further,
          absent more specific information pertaining to the profit and
          general expenses of the repaired watches, we are unable to
          conclude that the repaired watches are not of the same class as
          new watches.

                                        Sincerely,




                                        John Durant, Director,
                                        Commercial Rulings Division