HQ 544261: Prospective Ruling Request Regarding Dutiability of Capital Assets and Services

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 544261

                                        February 28, 1989

          CLA-2 CO:R:C:V  544261 EK

          CATEGORY:  Valuation

          William F. Joffroy, Jr.
          President, William F. Joffroy, Inc.
          P. O. Box 698
          Nogales, Arizona  85628-0698

          RE:  Prospective Ruling Request Regarding Dutiability of
               Capital Assets and Services

          Dear Mr. Joffroy:

                This is in response to your letter of October 27, 1988,
          regarding the dutiability of certain capital assets and services
          that your company (hereinafter referred to as importer) will be
          providing to its Mexican assembly plant.


          FACTS:

                You state that the importer will be assembling chain saws,
          small engines and string trimmers in Sonora, Mexico.  A number of
          capital assets are to be sent to the Mexican assembly plant by
          the importer.  These items include the following:  hand trucks,
          carts, automated conveyor belt system, air compressors, battery
          chargers for the fork lifts, fans, drafting tables, personal
          computers, pallet trucks, tape dispensers, hydrometers, assembly
          tables, dockboards, scales, ladders, air tanks, stools, digital
          weight display, office equipment and work benches.  You indicate
          that these items will be used in the shipping/receiving
          department, in the general offices and in the employee
          workstation areas.

                In addition, the general manager of the Mexican assembly
          plant will be a U.S. citizen and will be temporarily residing in
          Mexico.  The general manager will be employed by the importer and
          will receive all compensation from the importers office in the
          United States.  You state that the general manager will be
          responsible for managing and directing the overall operation and
          will not be directly involved in the assembly operations.  


















                                        - 2 -


          ISSUE:

                Whether the capital assets which the importer will provide,
          free of charge, to the Mexican assembler and the services of the
          general manager provided by the importer will be considered
          dutiable assists.


          LAW AND ANALYSIS:

                The relevant portion of section 402(h)(1)(A) of the Tariff
          Act of 1930, as amended by the Trade Agreements Act of 1979
          (TAA; 19 U.S.C. 1401a(h)(1)(A)) states the following:

                The term 'assist' means any of the following if
                supplied directly or indirectly, and free of charge
                or at a reduced cost, by the buyer of importer
                merchandise for use in connection with the production
                or the sale for export to the United States of the
                merchandise:

                  . . . [t]ools, dies, molds, and similar
                  items used in the production of the imported
                  merchandise . . .

                In order for the type of equipment which you have listed to
          be categorized as an assist, it must be used in the production of
          the imported merchandise as provided for in the statutory
          language cited above.  In TAA #18 (Headquarters Ruling No.
          542302) dated February 27, 1981, equipment which was not used in
          the production of the imported merchandise was not considered to
          be an assist within the meaning of section 402(h)(1)(A)(ii) of
          the TAA.  These items included telephone switching equipment, an
          emergency generator, air conditioning equipment and a power
          transformer.  More recently, this reasoning was applied in
          Headquarters Ruling No. 544083 dated August 18, 1988, with
          respect to merchandise which was not actually used in the
          production of the imported merchandise.

                Although you have not described the function of each of the
          products, the majority of the items appear as if they are not
          used in the production of the merchandise.  These items include:
          hand trucks, carts, air compressors, battery chargers for the
          fork lifts, fans, drafting tables, personal computers, tape
          dispensers, scales, ladders, stools and office equipment.
















                                        - 3 -


          However, with respect to the automated conveyor belt system,
          pallet trucks, hydrometers, assembly tables, dockboards, air
          tanks, digital weight display and work benches, a more detailed
          description would be needed to determine if they are used in the
          production of the imported merchandise.

                With respect to the cost of the services rendered by the
          general manager, management services as you have described are
          not assists as defined in section 402(h)(1)(A) of the TAA.  See,
          Headquarters Ruling Nos. 543820 and 543877 dated December 22,
          1986, and March 17, 1987, respectively.

                Please note that it is not clear from the information
          submitted as to which method of appraisement will be utilized to
          value the merchandise.  If the merchandise is appraised pursuant
          to computed value, section 402(e) of the TAA, then the issue of
          whether the items are assists is secondary to the question of
          whether the equipment should be included under computed value as
          the "cost or value of the materials and the fabrication and other
          processing of any kind employed in the production of the imported
          merchandise" or "an amount for profit and general expenses . . .
          made by the producers in the country of exportation for export to
          the United States."  See, section 402(e)(1)(A) and (B) of the
          TAA.  If, in accordance with generally accepted accounting
          principles of the country of production or exportation, the costs
          of this equipment should be reflected in the books of the foreign
          assembler as processing costs, then it may be that the costs are
          to be included in determining the computed value of the final
          imported product.  See, TAA #9 dated October 15, 1980.


          HOLDING:

                The majority of the items listed in your submission will
          not be considered dutiable assists.  In the absence of more
          detailed information, we cannot come to a conclusion as to the
          automated conveyor belt system, pallet trucks, hydrometers,
          assembly tables, dockboards, air tanks, digital weight display
          and the work benches.

                The cost of the services rendered by the general manager
          provided by the importer is not an assist within the meaning of
          section 402(h) of the TAA.

                                  Sincerely,




                                  John Durant, Director,
                                  Commercial Rulings Division