HQ 544147: Reconsideration of Internal Advice Regarding the Dutiability of Photomasks

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 544147

                                        July 5, 1988

          CLA-2 CO:R:CV:V 544147 DH

          CATEGORY:  Valuation

          Irving W. Smith, Jr., Esq.
          1331 Pennsylvania Avenue, N.W.
          Suite 1200F
          Washington, D.C. 20004

          RE:  Reconsideration of Internal Advice Regarding
               the Dutiability of Photomasks

          Dear Sir:

                This is in response to your letter of June 3, 1987,
          requesting a review of Headquarters Ruling Letter (HRL) 543889,
          dated May 12, 1987.

                In this ruling, we held that a photomask, which is used in
          the transfer of integrated circuitry patterns onto silicon
          wafers, is an assist within the meaning of section
          402(h)(1)(A)(ii) of the Tariff Act of 1930, as amended by the
          Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401).  Further, we
          concluded that the value of the assist is its cost of production
          which included the engineering and development costs incurred by
          the importer in producing the photomask.

          FACTS:

                You have provided additional information upon which to base
          this reconsideration.  You  state that under the current
          processing the photomask does not come into contact with either
          the silicon wafer or the photoresist coating on the silicon
          wafer.  The image is projected onto the photoresist by
          ultraviolet light.  You state that the photomask merely transfers
          the pattern (technical know-how) of the mask to the photoresist
          plastic material on the wafer.  You allege that the transfer of
          the image does not cause any physical change in the silicon wafer
          and that the image actually transferred is not the same as the
          image on the photomask in that it will undergo changes in length,
          width, and rounding of any corners during the developing process
          (washing with solvent) of the photoresist.

















                                       - 2 -

          ISSUES:

                Does the photomask fall within the definition of an assist
          under section 402(h)(1)(A)(ii)?

                If the photomask is determined to be an assist, is the
          design and engineering work performed in the United States to be
          included in the value?

          LAW AND ANALYSIS:

                As explained in Headquarters Ruling Letter 543889, the
          definition of the term "assists" in section 402(h)(1)(A)
          specifies those items or services which are treated as assists
          when supplied directly or indirectly to the buyer of imported
          merchandise, free of charge or at a reduced cost, for use in
          connection with the production or the sale for export to the
          United States of the imported merchandise.  Included in these
          items or services are "tools, dies, molds, and similar items used
          in the production of the imported merchandise" pursuant to
          section 402(h)(1)(A)(ii).

                We have stated in TAA No. 54, dated November 12, 1982, that
          a mold is ordinarily perceived as an item which gives final shape
          and form to the manufactured article.  You contend that since the
          photomask does not come into contact with the photoresist coated
          wafer that the photomask can not give final shape and form to the
          imported product.

                The fact that the image of the photomask is transferred to
          the photoresist coated wafer by projection rather than by actual
          physical contact is immaterial.  The mask is still used directly
          in the manufacture of the article, in the same way that a mold is
          used.  We believe that the differences between these two methods
          is insignificant in the determination of whether or not the
          photomask can be considered an assist.  We are also of the
          opinion that Headquarters Ruling Letters 542936, dated November
          12, 1982 ("mother disks") and 542625, dated January 18, 1982
          ("working films") are not analogous to this situation.  In both
          those rulings, an intermediate article (a metal stamper and a
          printing plate, respectively) was used to transfer the
          information from the "design" article (mother disk and working
          film) to the final product.  In this case, the photomask itself
          is used; there is no intermediate article.

                You also contend that the engineering and development costs
          related to the photomask should not be included in the value of
          the assists furnished the foreign producer in light of the
          holding in TAA No. 12, dated November 25, 1980.  













                                       - 3 -

                In TAA No. 12, the importer provided design work to a
          manufacturer in the United States which produced "bare" circuit
          boards, then delivered them to the importer.  These boards were
          then shipped with other components to be assembled in Mexico.

                We held under those facts that the boards were assists as
          defined in section 402(h)(1)(A)(i) of the TAA, as materials,
          components, parts and similar items incorporated in the imported
          merchandise.  The value of the assist was determined to be based
          upon the price of acquisition since it was acquired by the
          importer from an unrelated seller.  We referred to the Statement
          of Administrative Action pertaining to materials, components,
          parts, and similar items incorporated in the imported merchandise
          in drawing this conclusion.  The Statement of Administrative
          Action provides:

                    If the assist was acquired by the importer
                    from an unrelated seller, the value of the
                    assist is the cost of acquiring it.  If the
                    element was produced by the importer or
                    person related to him, its value would be the
                    cost of producing it.  The value shall
                    include transportation costs to the place of
                    production.  (emphasis added)

                The cost of acquiring the "bare" circuit boards from the
          unrelated U.S. seller only included the price paid by the buyer
          to the manufacturer without the additional cost of the design
          work since it was the service of manufacturing the "bare" circuit
          boards which was purchased and not the design work.

                Under the present situation, the importer has developed the
          design work and manufactured the mold from the design work.
          Therefore, the mold would be valued based upon the costs of
          producing the mold including the transportation costs to the
          place of production.  Included within these costs is the cost of
          the design work undertaken within the United States.  The
          Statement of Administrative Action regarding tools, dies, molds
          or other similar items used in the production of the imported
          merchandise provides:

                    If the assist was acquired by the importer
                    from an unrelated seller, the value of the
                    assist is the cost of acquiring it.  If the
                    element was produced by the importer or
                    person related to him, its value would be the
                    cost of producing it.... (emphasis added)















                                       - 4 -

                In accordance with section 402(h)(1)(A)(iv), it is the
          policy of the Customs Service not to duty services performed in
          the United States assuming that section is applicable.  However,
          this is not the case in either TAA No. 12 or the present
          situation.  The items being valued in these cases fall under
          section 402(h)(1)(A)(i) and 402(h)(1)(A)(ii) of the TAA and are
          therefore valued pursuant to their specific provisions in the
          Statement of Administrative Action.

                Therefore, we uphold our conclusion in Headquarters Ruling
          No. 543889, that the value of the assist is the cost of
          production which includes the engineering and development costs
          incurred in the United States by the importer in producing the
          photomask.

          HOLDING:

                We conclude that the photomask constitutes a mold under
          section 402(h)(1)(A)(ii).  Further, we conclude that the design
          and engineering work performed in the United States by the
          importer is to be included in the cost of production.


                                        Sincerely,




                                        Harvey B. Fox
                                        Director, Office of
                                        Regulations and Rulings