HQ 543947: Application for Further Review of Protest No. 3801-5-001295, contesting your denial of a deduction under item 807.00, TSUS, for the value of U.S. engineering and design work.

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 543947

                                    June 17, 1988


          CLA-2 CO:R:C:V  543947 CW

          CATEGORY:  Classification; Valuation

          TARIFF NO.:  807.00, TSUS (9802.00.80, HTSUSA)

          District Director of Customs
          Detroit, Michigan 48226

          RE:  Application for Further Review of Protest No.
               3801-5-001295, contesting your denial of a deduction under
               item 807.00, TSUS, for the value of U.S. engineering and
               design work.

          Dear Sir:

               The above-referenced protest concerns the applicability of
          the partial exemption from duty provided for by item 807.00,
          Tariff Schedules of the United States (TSUS), to certain U.S.
          engineering and design work utilized by the Canadian assembler in
          the assembly of the imported Seven Station Dial Index Machine.
          Although your office originally disallowed item 807.00, TSUS,
          treatment for the imported machine, we understand that additional
          documentation received from the importer (and protestant), Tri-
          Way Machine, Ltd., has persuaded your office that classification
          of the machine under item 807.00, TSUS, is warranted.

          FACTS:

               The record reflects that the buyer of the imported machine,
          Tri-Way Machine, Inc. of Troy, Michigan ("buyer"), provided
          certain U.S.-made components free of charge to the Canadian
          assembler, Tri-Way Machine, Ltd. ("assembler").  The assembler
          purchased certain additional U.S.-made components as well as
          engineering prints, diagrams and data from other U.S. sources.
          The invoice price from the assembler to the buyer for the
          imported machine included the cost of the assembly operation
          (plus profit) and the value of the U.S. components and U.S.
          engineering services purchased by the assembler.

               Protestant maintains that the deduction under item 807.00,
          TSUS, for the value of the U.S. components assembled into the
          imported machine should include the cost of the U.S. engineering
          services.  The protest states the following regarding this claim:















                                        - 2 -

               The engineering prints, diagrams, and data produced
               in the United States are viable articles used in the
               production of the merchandise and become the property
               of the buyer in the same manner as that of the other
               U.S. sourced articles used in assembly.

               In the opinion of your office, the item 807.00, TSUS,
          exemption from duty does not apply to the cost of U.S.
          engineering and design work utilized in the assembly process
          since prints, diagrams and similar data are not "fabricated
          components," as that term is defined in section 10.12(d) of the
          Customs Regulations.

          ISSUE:

               Whether the deduction under item 807.00, TSUS (subheading
          9802.00.80, Harmonized Tariff Schedule of the United States
          Annotated (HTSUSA)), for the value of U.S. fabricated components
          includes the cost of U.S. engineering and design work utilized in
          the assembly operation.

          LAW AND ANALYSIS:

               The partial exemption from duty provided for in item 807.00,
          TSUS, applies to articles assembled abroad in whole or in part of
          fabricated components of U.S. origin.  An article classified
          under item 807.00, TSUS, is subject to duty upon the full
          appraised value of the imported article, less the cost or value
          of the U.S. fabricated components.

               The term "fabricated component" is defined in section
          10.12(d), Customs Regulations, as "a manufactured article ready
          for assembly in the condition as exported except for operations
          incidental to the assembly."  The term "assembly," as used in
          item 807.00, TSUS, contemplates the joining or fitting together
          of solid components (see section 10.16, Customs Regulations).  In
          view of these provisions, it is clear that the U.S. prints,
          diagrams, and data purchased by the assember in this case are not
          fabricated components which are assembled into the imported
          merchandise.  Moreover, the cost of the engineering and design
          work may not be included in the value of the U.S. fabricated
          components assembled in Canada in light of section 10.17, Customs
          Regulations.  That section generally provides that the value of
          the U.S. components subject to the item 807.00, TSUS, exemption
          shall be their cost when last purchased, f.o.b. U.S. port of
          exportation, or, if no purchase was made, the value of the
          components at the time of their shipment for exportation from the
          U.S.














                                        - 3 -

               You point out that an issue indirectly raised by the protest
          (although not specifically discussed by the protestant) concerns
          whether the cost of the U.S. engineering and design work involved
          in this case is properly included as part of the transaction
          value of the imported machine.  In this regard, section 402(b) of
          the Tariff Act of 1930, as amended by the Trade Agreements Act of
          1979 (TAA), provides that transaction value consists of the
          price actually paid or payable for the merchandise, plus amounts
          for certain specified items to the extent that those amounts are
          not already included in that price.  One of these items is the
          value of any assist.  Section 402(h)(1)(A) of the TAA indicates
          that engineering and design work provided free of charge or at
          reduced cost by the buyer shall be added to the price actually
          paid or payable as an assist if such work is undertaken outside
          the U.S.  Thus, engineering and design work undertaken in the
          U.S. and provided free of charge or at reduced cost by the buyer
          is not considered an assist and its value will not be added to
          the price actually paid or payable for the imported merchandise.

               However, because the engineering and design work involved in
          this case was not provided free of charge or at reduced cost by
          the buyer, the question of whether this work constitutes a
          dutiable assist does not arise.  The engineering and design work
          in question was purchased by the assembler from a third party and
          its cost was included in the price actually paid or payable for
          the imported machine.  There is no provision in the TAA which
          authorizes the deduction of the cost of U.S. engineering and
          design work from the price actually paid or payable for imported
          merchandise.

          HOLDING:

               The deduction under item 807.00, TSUS, for the value of U.S.
          fabricated components shall not include the cost of the U.S.
          prints, diagrams, and data purchased by the Canadian assembler
          for use in connection with the assembly of the imported machine.
          Moreover, under the circumstances of this case, the cost of the
          U.S. engineering and design work is properly part of the
          transaction value of the imported machine.  Therefore, you are
          directed to deny the portion of the protest relating to the
          dutiability of the cost of the engineering and design work.

                                      Sincerely,




                                      John Durant
                                      Director, Commercial
                                      Rulings Division