HQ 544190: Ruling Request Regarding Shipment of Foreign Fabric From a Foreign Trade Zone

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 544190

                                 September 26, 1988

          CLA-2 CO:R:C:V  544190 EK


          CATEGORY:  Valuation


          Special Agent in Charge
          Kennedy Airport Area
          Jamaica, New York


          RE:  Ruling Request Regarding Shipment of Foreign Fabric
               From a Foreign Trade Zone

          Dear Sir:

                This is in response to your memorandum of March 29, 1988,
          requesting internal advice regarding merchandise shipped through
          a foreign trade zone.


          FACTS:

                You state that a United States company (hereinafter
          referred to as company A) purchases fabric from a foreign vendor
          and has it shipped directly to a U.S. foreign trade zone.  The
          fabric is then given free of charge to a second United States
          company (hereinafter referred to as company B) who is unrelated
          to company A.  You indicate that company B may partially process
          the fabric in the foreign trade zone prior to exporting it to its
          own related foreign manufacturer (hereinafter referred to as
          company C).

                The fabric is then assembled into finished garments by
          company C.  The finished garments are then sent back to the
          United States and entered by company B, the importer of record.
          Company C is paid by company B for services rendered in
          assembling the merchandise.  Subsequent to entry into the United
          States, company B sells the finished garments to company A, the
          original purchaser of the uncut fabric.  No reimbursement is made
          by company B to company A for the furnishing of the fabric.    


















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          ISSUE:

                Whether transaction value pursuant to section 402(b) of the
          Tariff Act of 1930, as amended by the Trade Agreements Act of
          1979 (19 U.S.C. 1401a(b); TAA), is applicable in appraising the
          final imported product and if so, what is to be included in
          determining the transaction value.


          LAW AND ANALYSIS:

                Transaction value, the preferred method of appraisement, is
          defined as "the price actually paid or payable" for merchandise
          when sold for exportation to the United States, plus certain
          additions including the value of any assist.  With respect to
          assembled merchandise, 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.

                In determining the transaction value of imported
          merchandise, the value, apportioned as appropriate, of any assist
          will be added to the "price actually paid or payable."  In this
          case, the fabric is supplied to company B, without charge, by
          company A.  Company B then supplies the foreign assembler,
          company C, with the fabric.  The value of the fabric should be
          added to the "price actually paid or payable" by company B to its
          related party, company C.  To the extent that the fabric is
          "partially" processed in the foreign trade zone, such is included
          in determining the value of the assist.

                The value of the assist includes transportation costs to
          the place of production.  See, 19 CFR 152.103(d)(1).  Therefore,
          all costs incurred in transporting the fabric to company C's
          assembly plant are included in determining the value of the
          assist.  This includes costs incurred in transporting to the
          foreign trade zone, as well as those incurred transporting the
          fabric from the foreign trade zone to the assembler's plant.

                Before a determination can be made regarding the
          applicability of item 807.00, Tariff Schedules of the United
          States, to the imported finished garments, more detailed













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          information is needed regarding the processing of the fabric
          performed in the foreign trade zone.  See, 19 CFR 10.14(b).

                You further inquire as to whether the transactions between
          the foreign assembler, company C, and company B are considered
          arms-length transactions.  This becomes an issue in determining
          whether the price established between the parties is influenced
          by the relationship.  The relevant provision with regard to
          related parties states the following:

                The transaction value between a related buyer and
                seller is acceptable . . . if an examination of the
                circumstances of the sale of the imported merchandise
                indicates that the relationship between such buyer and
                seller did not influence the price actually paid or
                payable.  See, section 402(b)(2)(B).

                In determining whether the relationship between the parties
          influences the price of imported merchandise, if it is shown that
          the buyer and seller, albeit related, buy and sell from one
          another as if they are not related, this indicates that the price
          is not influenced by the relationship between the parties, and
          appraisement pursuant to transaction value is proper.  If the
          price is determined in such a manner which is consistent with the
          normal pricing practice of the industry, or with the way the
          seller deals with unrelated buyers, then it is considered not to
          have been influenced by the relationship between the parties.

                Therefore, in this case, if it appears that the fee charged
          by company C to its related party, company B, to assemble the
          merchandise fits within the above criteria, then the transactions
          are considered to be at arms length.

                Your final question pertains to whether the mark-up in
          value in the sale between company B, the importer of record, and
          company A, the original purchaser of the fabric and the ultimate
          purchaser of the final product in the United States, should be
          considered in appraising the merchandise.  The sale between
          company B and company A appears to be a domestic sale in the
          United States and should not be considered in determining
          transaction value.

                It should be noted that even though the information
          submitted is somewhat hypothetical in nature, we have attempted

















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          to provide your office with as much guidance as possible.
          Nonetheless, a change in any particular fact could change our
          response.

                                  Sincerely,





                                  John Durant, Director,
                                  Commercial Rulings Division