HQ 543985: Internal Advice No. 25/87; Dutiability of Packing Costs

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 543985

                                        February 1, 1988

          CLA-2 CO:R:CV:V  543985 EK

          CATEGORY:  Valuation

          District Director of Customs
          New Orleans, Louisiana

          RE:  Internal Advice No. 25/87; Dutiability of Packing Costs

          Dear Sir:

                This is in response to an internal advice request initiated
          by the importer, through counsel, regarding the valuation of
          merchandise imported from China, through Hong Kong.  The
          merchandise is subject to appraisement pursuant to transaction
          value, 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)).

          FACTS:

                The importations in question involve footwear imported from
          the PRC through Hong Kong, whereby the importer utilizes the
          services of a Hong Kong buying agent.  For purposes of this
          internal advice request, we are assuming that the agent is in
          fact a bona fide buying agent of the importer and that the
          commissions paid to the agent are non-dutiable charges.  The
          merchandise is purchased ex-factory from China.

                The importer states that the agent in Hong Kong facilitated
          the process of the goods arriving from China by providing, among
          other things, inspection of the packages and, when necessary,
          rearranging and repacking the merchandise.  The importer alleges
          that in each instance, the factory's original packing sufficed
          for export; however, due to the factory's inexperience, many
          shipments were sloppy by American standards.  The importer
          further states that it is not that the merchandise would not
          otherwise have been seaworthy packed or not survived the voyage
          but rather, the merchandise was not segregated properly.

                It is alleged that any repacking done by the Hong Kong
          agent was done solely for cosmetic purposes, i.e., rearranging
          and segregating.  The merchandise was not destined to be shipped
          to the importer directly but rather, to the importer's customers

















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          in the United States.  The importer states that these ultimate
          United States purchasers wanted shipments which could be sent
          immediately to their retail outlets and could be segregated by
          style, size and color.

          ISSUE:

                Whether the repacking charges incurred by the importer are
          to be added to the "price actually paid or payable" for the
          imported merchandise.

          LAW AND ANALYSIS:

                Transaction value is defined as the "price actually paid or
          payable for the merchandise" and includes costs incurred for
          packing incurred by the buyer with respect to the imported
          merchandise.  See, section 402(b)(1)(A) of the TAA.  The term
          'packing costs' is defined in section 402(h)(3) as "the cost of
          all containers and coverings of whatever nature and of packing,
          whether for labor or materials, used in placing merchandise in
          condition, packed ready for shipment to the United States."
          (emphasis added).

                In Headquarters Ruling No. 542834 dated July 20, 1982 (TAA
          #49), we noted that the phrase "packed ready for shipment to the
          United States" was analogous to the merchandise being "in
          seaworthy condition."  Therefore, in that case services performed
          which were incident to placing the merchandise in condition
          packed, ready for shipment to the United States were held to be
          dutiable as "packing costs."  The costs incurred subsequent to
          the merchandise attaining that status were held to be not
          dutiable.

                In Headquarters Ruling No. 543026 dated March 17, 1983,
          certain expenses incurred for vacuum packing were held to be not
          part of the dutiable value of the imported merchandise because
          such took place subsequent to the merchandise being placed in
          condition, packed ready for shipment to the United States.


          HOLDING:

                In view of the foregoing, it is our conclusion that the
          expenses incurred by the importer are not "packing" costs within

















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          the meaning of section 402(h)(3) of the TAA.  The merchandise,
          when it was exported from the PRC, was packed ready for shipment
          to the United States.  The charges incurred subsequent to this
          condition are not added to the "price actually paid or payable"
          to determine the transaction value of the imported merchandise.

                                        Sincerely,




                                        John Durant
                                        Acting Director, Commercial
                                        Rulings Division