HQ 544655: Request for a Ruling on the Elements of Computed Value and The Dutiability of Certain Articles Provided Free of Charge

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 544655

                                   June 13, 1991

VAL CO:R:C:V  544655 ML

CATEGORY:  Valuation

Rudy A. Pina
R.A. Pina & Associates, Inc.
P.O. Box 2496
Nogales, Arizona  85628

RE:  Request for a Ruling on the Elements of Computed Value and
     The Dutiability of Certain Articles Provided Free of Charge

Dear Mr. Pina:

     This is in response to your letter dated February 8, 1991,
requesting a ruling on whether a cost submission report submitted
to Customs adequately shows the elements of computed value under
section 402(e) of the Tariff Act of 1930, as amended by the Trade
Agreements Act of 1979 (TAA; 19 U.S.C. 1401a) and whether certain
articles provided free of charge to the foreign seller will be
considered dutiable assists within the meaning of section
402(h)(1)(A) of the TAA.

FACTS:

     According to your letter, Growers Distributing International
Corporation, (hereinafter referred to as the "consignee" or the
"importer"), has entered into agreements with farmers in Mexico
to distribute their cantaloupes and honeydew melons in the
United States.  The consignee acts as the importer of record and
the merchandise is consigned to it in Nogales, Arizona.

     At the time of entry summary, the consignee will request
that the imported merchandise be appraised according to computed
value, as the merchandise has not been sold for export to the
United States and as provided for in section 402(a)(2) of the
TAA and section 152.101(c), Customs Regulations (19 CFR
152.101(c)).

     The importer plans to report the elements of computed value
to Customs by using an Actual Cost Submission Report, CF-247.
The importer may send, to the Mexican farmers, at no charge,
seed, pesticides, herbicides, insecticides, and farm equipment
such as a truck and tractor.

ISSUES:

     (1)  Whether the actual cost submission report satisfies the
          elements of computed value.

     (2)  Whether certain articles provided by the importer to
          growers free of charge constitute assists.

LAW AND ANALYSIS:

     The imported merchandise is to be appraised pursuant to
computed value, under section 402(e) of the TAA.  We have assumed
that the importer will meet the requirements of section
152.101(c) of the TAA.

     Section 402(e)(1) of the TAA provides that computed value
consists of the sum of:

          (A)  the cost or value of the materials and the
          fabrication and other processing of any kind employed
          in the production of the imported merchandise;

          (B)  an amount for profit and general expenses equal to
          that usually reflected in sales of merchandise of the
          same class or kind as the imported merchandise that are
          made by the producers in the country of exportation for
          export to the United States;

          (C)  any assist, if its value is not included under
          subparagraph (A) or (B); and

          (D)  the packing costs.

     As regards the first issue presented, you assert that the
cost submission report includes all of the elements of computed
value.  Without knowing all the produce costs, we are unable to
conclude that this is a complete list of costs that necessarily
compose computed value as defined in 402(e)(1)(A) through (D) of
the TAA.  However, we can tell you that from our perspective,
the information submitted is consistent with computed value
requirements.

     The second issue to be addressed is whether or not the
seeds, pesticides, herbicides, insecticides, and equipment, such
as a truck and tractor, provided free of charge, constitute an
assist.  Section 402(e)(1)(C) of the TAA provides that the
computed value of imported merchandise  will include a sum for
any assist, if its value is not included under subparagraph (A)
or (B).

     The term assist means any of the following if supplied
directly, 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, art work, design work,
          plans and sketches that are undertaken elsewhere than
          in the United States and are necessary for the
          production of the imported merchandise.

     You contend that the articles to be sent to Mexican growers
free of charge are not covered by name in any of the four
categories of assists, and therefore, should not be considered as
dutiable under section 402(h)(1)(A) of the TAA.  To the extent
that the articles supplied free of charge are not otherwise
included in section 402(e)(1)(A) or (B), these articles may fall
within category (i), (ii) or (iii) of section 402(h)(1)(A) of the
TAA.  Clearly, the articles do not fall within category (iv).

     Section 402(h)(1)(A)(iii) of the TAA addresses merchandise
consumed in the production of imported merchandise.  In
Headquarters Ruling Letter (HRL) 543943, dated December 8, 1987,
Customs found that a microorganism furnished to the seller, by
the buyer, to produce a certain product was "consumed in the
production of the imported merchandise.  The microorganism was
treated as an assist under section 402(h)(1)(A)(iii) of the TAA.

     With regard to seeds, pesticides, herbicides, we find these
items to have been "consumed" in the production of the melons.
These items, supplied free of charge by the consignee to the
Mexican farmers constitute assists within the meaning of
402(h)(1)(A)(iii) and to the extent not otherwise included in
subparagraph (A) or (B) of section 402(e) of the TAA, will be
included in a computed value appraisement.

     Pursuant to the facts, farm equipment will also be provided
to the Mexican farmers free of charge.  Equipment provided free
of charge to the Mexican farmers by the U.S. consignee may
constitute an assist within the meaning of 402(h)(1)(A) of the
TAA if the equipment was used during the production process and
that the equipment was essential to production of the product.

     Again, it should be noted that if the imported merchandise
is appraised under computed value the costs of the equipment may
be included 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 the 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 C.S.D. 89-127, dated May 21, 1990, HRL 544083, dated August
16, 1988 and HRL 542139, dated October 15, 1980 (TAA #9).

     In HRL 542122, dated September 4, 1980 (TAA #4), Customs
held that general purpose equipment, such as sewing machines,
ovens drill presses, etc., which was actually used in the
production of the merchandise was dutiable as an assist under
section 402(h)(1)(A)(ii) of the TAA.  In HRL 542302, dated
February 27, 1981 (TAA #18), Customs contrasted this equipment
with general purpose equipment such as emergency power
generators, telephone switching equipment, and air conditioning
equipment, which was not used in the actual production of the
imported merchandise and was, therefore, not considered to be an
assist within the meaning of section 402(h)(1)(A)(ii) of the TAA
and not includable as any of the elements in determining computed
value.  In HQ 542762, dated January 14, 1983, Customs noted that
the distinction is often based on whether or not the equipment
"works a change" on the merchandise during production.

     In HRL 542139, dated October 15, 1980 (TAA #9), Customs
stated that general purpose equipment is treated as an assist.
Section 402(h)(1)(A)(ii) of the TAA specifically addresses
"tools...and similar items used in the production of the
merchandise."  In Texas Apparel v. United States, Slip-Op. 88-148
(1988), the court affirmed Customs' position that even general
purpose equipment may be considered assists under section
402(h)(1)(A)(ii) of the TAA, if such equipment is used directly
in the production of the imported merchandise.  Customs, in
determining the appraised value on the basis of computed value,
had included an addition for the cost of sewing machines as an
assist.  The plaintiff had claimed that the inclusion of the cost
of the sewing machines was an error because the machines were not
"tools dies, molds, and similar items used in the production of
the imported merchandise" as provided for in the statute.  The
court found that including the value of the sewing machine, which
was essential to the fabrication of the apparel, fairly and
accurately reflected the cost of producing the imported
merchandise."

     In applying the court's decision to this case, we must
determine whether the various pieces of equipment provided by the
consignee are considered to be production or non-production
equipment.  In C.S.D. 88-20, dated August 16, 1988, we held that
a conveyor system used to transport an article being produced
from one point in the manufacturing process to another was not an


assist because it was not "used in the production of the importd
merchandise" within the meaning of section 402(h)(1)(A)(ii) of
the TAA.  While we are in the process of re-examining our
position with regards to this issue (as stated in HRL 544480,
dated September 21, 1990), we do not find that a truck, which
arguably may move and carry material from one point in the
production process to another, is "used in the production of the
imported merchandise.  Therefore, under the facts provided, we do
not find this piece of equipment to be an assist within the
meaning of section 402(h)(1)(A)(ii) of the TAA.

     The last piece of equipment to be supplied at no cost is a
tractor.  Unlike the furnishing of the truck, a tractor is used
during production and not after production.  In HRL 544508,
dated June 19, 1990, Customs distinguished equipment used during
the production process and essential to production from equipment
used after the production process.  It is our opinion that a
tractor which is used during the production process and is
essential to the growth of the melons, is a "similar item" to
that of a tool, die and mold used in the production of the
imported merchandise under section 402(h)(1)(A)(ii) of the TAA.
We find that this piece of general purpose equipment is of the
type which may be considered an assist, consistent with the
court's finding in Texas Apparel and consistent with a similar
approach towards "tools" taken by the court in Aris Isotoner
Gloves v. United States, Slip Op. 90-103 (1990).  In Texas
Apparel, the court stressed that although a tool may be defined
as a manual instrument, a tool may also be defined more broadly
as "an implement or object used in performing an operation or
carrying on work on any kind..."  See Websters Third New
International Dictionary 2408 (1981).  Since this equipment is
used during the production process and is essential to the
production of the melons it is falls within section
402(h)(1)(A)(ii) of the TAA.

HOLDING:

     Under the circumstances presented, we are unable to
determine if the actual cost submission report includes all of
the costs that necessarily compose computed value as defined in
402(e)(1)(A) through (D) of the TAA.

     Additionally, to the extent not otherwise included under
subparagraph (a) or (B) of section 402(e)(1) of the TAA, the
consignee's supplying of seeds, pesticides, herbicides and a
tractor, at no charge, to the Mexican farmers would constitute
assists within the meaning of section 402(h)(1)(A) of the TAA.
The furnishing of a truck, free of charge, would not constitute
an assist within the meaning of 402(h)(1)(A) of the TAA and would
not, therefore, be part of a computed value appraisement under
section 402(e)(1)(C) of the TAA.

                                   Sincerely,


                                   John Durant, Director
                                   Commercial Rulings Division