HQ 544624: Dutiability of certain production and non-production machinery furnished to foreign manufacturer by importer

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 544624

                         April 11, 1991


VAL CO:R:C:V  544624 DPS

CATEGORY:  Valuation


John M. Peterson, Esq.
Neville, Peterson & Williams
39 Broadway
New York, New York 10006

RE:  Dutiability of certain production and non-production
     machinery furnished to foreign manufacturer by importer

Dear Mr. Peterson:

     This is in response to your letter of December 31, 1990,
requesting a ruling on behalf of Aris-Isotoner, Inc.
("Aris").  Specifically, you seek a ruling on issues similar
to those addressed in Headquarters Ruling Letter (HRL)
544323, dated March 8, 1990, which concerns the dutiability
of certain charges incurred by Aris with respect to the
production of gloves and other merchandise by the company's
foreign manufacturing affiliate, Aris (Philippines) Inc.
(API).  Here you request that Customs rule on the question of
whether certain equipment, furnished by Aris free of charge
or at reduced cost to API, constitute dutiable assists.


FACTS:

     In HRL 544423 Customs ruled on the dutiability of a
variety of expenses which Aris incurred relative to the
production by API of certain imported gloves, slippers and
similar clothing accessories.  The costs involved in that
ruling included salary and benefit costs paid by Aris for
managerial personnel stationed at API, allocated costs of
Aris' purchasing and shipping departments, payments by Aris
for the warehousing and accounting of materials and supplies
used in the production of imported merchandise, and export
packing costs.  Aris also requested, at that time, that
Customs rule on the dutiability of certain equipment
described as "non-production" equipment furnished by Aris to
API.  We declined to rule on the dutiability of those
expenses because similar issues involving other non-
production equipment furnished by Aris to API were the
subject of litigation pending in the United States Court of
International Trade, specifically, Aris-Isotoner Gloves, Inc.
v. United States, CIT No. 83-06-00866.  The Court of
International Trade rendered its decision in the above matter
on October 10, 1990, wherein it addressed the issue of
treating certain "production" and "non-production" costs as
assists.
  
       In light of the recent CIT decision, Aris now seeks a
ruling to the effect that the equipment described below,
provided free of charge to API, not be considered assists. 
The equipment at issue includes the following items: dyeing
machines, computer printers, ribbons, barcode readers,
computer peripherals, computer diskettes and manuals,
electric cementing and folding machines, laboratory supplies,
tape dispensers, ceiling fans and microwave ovens.

ISSUE:

     Whether or not the equipment described above, furnished
by Aris free of charge or at reduced cost to API, constitute
assists under section 402(h) of the TAA.

LAW AND ANALYSIS:

     Transaction value, the preferred method of appraisement
is defined in section 402(b)(1) of the Tariff Act of 1930, as
amended by the Trade Agreements Act of 1979 (19 U.S.C.
1401a(b); TAA) as the "price actually paid or payable for the
merchandise" plus five enumerated statutory additions.

     One of the statutory additions is "the value,
apportioned as appropriate, of any assist...."  The term
"assist" is defined in section 402(h) of the TAA as follows:

     any of the following if supplied directly or
     indirectly, and free of charge or at reduced cost,
     by the buyer of imported merchandise for use in
     connection with the production or the sale for
     export to the United States of the merchandise:

          (i) Materials, components, parts, and similar
          items incorporated in the imported
          merchandise.

          (ii) Tools, dies, molds, and similar items
          used in the production of the imported
          merchandise.

          (iii) Merchandise consumed in the production
          of the imported merchandise.

          (iv) Engineering, development, artwork, design
          work, and plans and sketches that are
          undertaken elsewhere than in the United States
          and are necessary for the production of the
          imported merchandise.

Consistent with our previous ruling to Aris, HRL 544323, we
assume that transaction value is the proper method of
appraisement.

     In Aris Isotoner Gloves, Inc. v United States, Slip Op.
90-103 (October 10, 1990), the court cited Texas Apparel Co.
v. United States, 12 CIT   , 698 F. Supp. 932 (1988), aff'd,
883 F.2d 66 (CAFC 1989), cert. denied, 110 S.Ct. 728 (1990),
in recognizing the distinction between machinery which works
directly on the merchandise or contributes directly to its
manufacture, e.g., sewing machines, drill presses and ovens,
and machinery which is not used directly in the production of
merchandise itself, e.g., airconditioners and emergency
generators.  The court held that Aris was entitled to
recovery as to the non-production machinery, which is not
directly used in producing imported merchandise, while
machinery used directly in the production of imported
merchandise constitutes an assist under the language of 19
U.S.C. section 1401a(h)(1)(A).     

     In applying the court's decision to this case, we must
determine whether the various pieces of equipment provided by
Aris to API are considered to be production or non-production
machinery.  In its March 8, 1990, ruling request, Aris
provided a list of the non-production equipment at issue, and
briefly described each item's use.  

     The computer printers, ribbons, barcode readers,
computer peripherals, diskettes and manuals, ceiling fan and
microwave oven are described as having a general office use. 
The electric cementing and folding machine, and gum tape
dispensers are described as having a general office and
shipping department use.  The laboratory supplies are stated
to be used in research and testing, not merchandise
production.  The dyeing machines are used at the premises of
an unrelated API supplier for dyeing yarn that is used in the
manufacture of the subject imported merchandise.

     The above listed items used for general office purposes
only are not directly employed in the manufacture or
production of imported merchandise.  Accordingly, these
items, the computer printers, ribbons, barcode readers,
computer peripherals, diskettes and manuals, ceiling fans and
microwave ovens should not be considered assists.  



     The dyeing machines, however, are used in the
manufacture of the imported merchandise.  The yarns from
which the gloves, slippers and other clothing accessories are
manufactured are dyed by these machines.  Even though the
dyeing operations are undertaken in a plant separate from the
place of final assembly, such operations are directly
employed in the production of the imported merchandise. 
Therefore, these items should be considered assists under
section 402(h) of the TAA.

     Assuming the cementing and folding machines are not
utilized to pack the merchandise ready to ship for
exportation to the U.S., they would not be dutiable as
assists or includable in transaction value as packing costs. 
If they are used in the packing of the merchandise for
exportation to the U.S., they should be included as part of
transaction value pursuant to section 402(b)(1)(A) of the TAA
as packing costs incurred by the buyer with respect to the
imported merchandise.

     Regarding the laboratory equipment, we are unable to
render a ruling because sufficient information as to the
actual equipment supplied and its particular use was not
provided.


HOLDING:

     Except for the limitations set forth above, the
equipment having a general office use, not used in the
production or packing of the subject merchandise, should not
be treated as assists.  The dyeing machines employed in the
production of yarns used for the manufacture of the imported
merchandise are to be treated as assists.


                              Sincerely,




                              John Durant, Director