HQ 547175

April 21, 2000

RR:IT:VA 547175 LR

CATEGORY: Valuation

Mr. Harvey A. Isaacs

Mr. Louis S. Shoichet

Tompkins & Davidson, LLP

One Astor Plaza

1515 Broadway

New York, NY 10036-8901

RE: Preparation of Bid Specifications; Price Actually Paid or Payable;
Assists

Dear Messrs. Isaacs and Shoichet:

This is in response to your letters of September 2, 1998, and February
10, 1999, on behalf of North American Lighting Company, Inc. (NAL),
concerning the appraisement of certain tools and gauges used to produce
parts for automotive lighting fixtures imported by NAL. You request that
this letter apply to prospective shipments of tools and gauges only. We
regret the delay in responding.

FACTS:

NAL is a joint venture of three companies, one of which is Ichikoh
Industries, Ltd. (IKH). IKH produces lighting fixtures for automobiles
manufactured in Japan, and NAL manufactures lighting fixtures for
automobiles produced in the U.S. and Canada. NAL typically manufactures
the body of the head lamp (housing and lens) as well as various
component parts. Other parts and components, such as wiring harnesses
and bulbs, are purchased either from unrelated vendors or from NAL's
parent companies at what you describe as arms' length prices.

You state that, in the course of designing new automobiles, car
manufacturers solicit bids from independent parts suppliers for the
production of various components, including head lamps and rear lamps.
To facilitate this process, the car manufacturer provides written
specifications of the lighting fixture together with drawings of the
space which will accommodate the fixture to the suppliers, including
NAL. At times a rough drawing of the fixture is also provided. Based
upon these specifications, NAL will submit a bid reflecting the
following elements: (1) the manufacturing cost of the tools and gauges
required to make the component parts produced by NAL; and (2) the NAL
costs and profit to produce the parts which it manufactures and to
resource those it does not. Depending upon the production schedule for
the automobile, NAL will develop the bid and associated blueprints
itself, or it may request that IKH provide this information.

You state that, as of the beginning of 1998, NAL has agreed to pay IKH a
fee for the preparation of the bid specifications and blueprints for the
various components necessary to produce the finished headlight,
taillight, or indicator lamp. Although no actual or sample
specifications and blueprints to be provided by IKH have been submitted,
you indicate that they relate only to the lighting fixture, its parts
and components only and not to any specifications, details or
instructions relating to the imported tools and gauges. You also state
that the specifications and blueprints will illustrate the physical
characteristics and dimensions of the finished lamp. From the
information received, NAL prepares its bid to the car manufacturer.

After a bid by NAL is accepted, NAL will then place orders for
production of required tools and gauges as well as the out-sourced
components. If time permits, in addition to the bid received from IKH,
NAL will seek competitive bids for the manufacture of the tools and
gauges from unrelated companies in the U.S. If time does not allow for
this and/or where IKH is the lowest bidder for the tools and gauges,
they will be ordered from IKH. IKH may either produce the tools and
gauges itself, or may order them from other companies not located in the
U.S. which are experienced fabricators with the requisite skills and
experience necessary to design and produce the ordered product. In
either case, you state that the manufacturer of the tools and gauges is
responsible for designing and preparing the shop drawings used in the
production of these items. You indicate that the blueprints are not used
directly in the manufacture of the imported tools and gauges.

ISSUE:

Whether the fee paid by NAL to IKH for the preparation of bid
specifications and blueprints is an element of transaction value of the
imported tools and gauges either as part of the price actually paid or
payable or as an addition thereto as an assist.

LAW AND ANALYSIS:

The preferred method of appraising merchandise imported into the U.S. is
transaction value pursuant to section 402(b) of the Tariff Act of 1930,
as amended by the Trade Agreements Act of 1979 (TAA), codified at 19
U.S.C. §1401a. 19 U.S.C. §1401a(b)(1) provides, in pertinent part, that
the transaction value of imported merchandise is the "price actually
paid or payable for the merchandise when sold for exportation to the
United States" plus enumerated statutory additions.

For purposes of this ruling, we will assume that transaction value is
the proper basis of appraisement. Although it is our understanding that
the parties are related within the meaning of 19 U.S.C. §1401a(g)(1),
this issue has not been raised in the ruling request and we will not
address it in this ruling.

Although your submission concentrates on whether the fee paid by NAL to
IKH for the bid specifications constitutes an assist, which is one of
the enumerated statutory additions, we must first determine whether the
fee is part of the price actually paid or payable for the imported tools
and gauges.

The \"price actually paid or payable\" is defined in 19 U.S.C.
§1401a(b)(4)(A) as the \"total payment (whether direct or indirect, and
exclusive of any costs, charges, or expenses incurred for
transportation, insurance, and related services incident to the
international shipment of the merchandise\...) made, or to be made, for
the imported merchandise by the buyer to, or for the benefit of, the
seller.\"

Several court cases have addressed the meaning of the term \"price
actually paid or payable.\" In [Generra Sportswear Co. v.
U.S.]{.underline}, 8 CAFC 132, 905 F.2d 377 (1990), the court considered
whether quota charges paid to the seller on behalf of the buyer were
part of the price actually paid or payable for the imported goods. In
reversing the decision of the lower court, the appellate court held that
the term \"total payment\" is all‑inclusive and that \"as long as the
quota payment was made to the seller in exchange for merchandise sold
for export to the United States, the payment properly may be included in
transaction value, even if the payment represents something other than
the per se value of the goods.\" The court also explained that it did
not intend that Customs engage in extensive fact‑finding to determine
whether separate charges, all resulting in payments to the seller in
connection with the purchase of imported merchandise, were for the
merchandise or something else. Accord, [Tikal Distributing Corp. v.
United States]{.underline}*,* Slip Op. 00-24 (Ct. Intl. Trade, decided
February 28, 2000).

In [Chrysler Corporation v. U.S.]{.underline}, 17 CIT 1049 (1993), the
Court of International Trade applied the [Generra]{.underline} standard
and determined that although tooling expenses incurred for the
production of the merchandise were part of the price actually paid or
payable for the imported merchandise, certain shortfall and special
application fees which the buyer paid to the seller were not a component
of the price actually paid or payable. With regard to the latter fees,
the court found that the evidence established that the fees were
independent and unrelated costs assessed because the buyer failed to
purchase other products from the seller and not a component of the price
of the imported engines.

It has been our position that based on [Generra]{.underline}, there is a
presumption that all payments made by a buyer to a seller, or a party
related to the seller, are part of the price actually paid or payable
for the imported merchandise. However, this presumption may be rebutted
by evidence which clearly establishes that the payments, like those in
[Chrysler]{.underline}, are completely unrelated to the imported
merchandise. [See]{.underline} HQ 545663, dated July 14, 1995.

Customs has previously ruled that payments to the seller for expenses
incurred for design and development of the imported merchandise,
including the development of prototypes and other development costs, are
part of the price actually paid or payable for the imported merchandise.
[See]{.underline} HQ 546000, dated September 6, 1996.

The issue presented in this case is whether the fee NAL pays to IKH for
the specifications and blueprints is for the design and development of
the imported tools and gauges or otherwise relates to the imported tools
and gauges. If so, it would be an element of the price actually paid or
payable for the imported tools and gauges. We find that the
specifications and blueprints do not relate to the imported merchandise.

In this case, there are two separate manufacturing transactions, the
production of the tools and gauges and the production of the lighting
fixtures. The two appear to be separate and independent from one
another. Based on your description, the blueprints and specifications
prepared by IKH relate to the production of the lighting fixtures and
not the production of the tools and gauges used to produce the lighting
fixtures. Specifically, the blueprints included in the bid
specifications contain only the specifications for the various
components necessary to produce the particular lighting fixture, and not
the means of producing the imported tools and gauges; the blueprints are
not used directly in the production of the imported tools and gauges;
and, the manufacturer of the tools and gauges is responsible for
designing and preparing the shop drawings used in the production of
these items. We also note that the preparation of the bid specifications
takes place prior to NAL placing orders for production of the tools and
gauges. If NAL's bid is not accepted, NAL will not place an order for
the tools and gauges, and IKH will therefore not provide the tools and
gauges.

Although no documentation relating to IKH's work product has been
submitted, based on your description, we find that the fee paid to IKH
for the preparation of the items is not related to the imported tools
and gauges nor to their design and development. Therefore, we find that
the fee is not part of the price actually paid or payable of the
imported products.

We further find that the fee paid by NAL to IKH for the preparation of
the bid specifications does not constitute an assist such that is an
addition to the price actually paid or payable for the tools and gauges.
The term \"assist\" is defined in 19 U.S.C. §1401a(h) 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.

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(iii) 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.

In HQ 544381, dated November 25, 1991, we stated that:

\[i\]t has been Customs position that a payment of money from the buyer
to the foreign manufacturer does not constitute an assist within the
meaning of402(h)(1)(A). In Headquarters Ruling Letter (HRL) 543376,
dated November 13, 1984, Customs held that a payment by an importer to a
foreign manufacturer for the design and development of a prototype
industrial robot was not an assist, but rather was dutiable as part of
the price actually paid or payable to the seller as a direct payment for
the prototype.

In this case, NAL does not provide any the items specified above for use
in connection with the production or the sale for export to the United
States of the imported gauges and tools. Rather, NAL pays IKH a fee for
preparation of certain specifications and blueprints. In accordance with
the above rulings, we find the fee does not constitute an assist to be
added to the price actually paid or payable of the imported gauges and
tools.

HOLDING:

Based on the information provided, including your description of the bid
specifications and blueprints, the fee paid by NAL to IKH for the
preparation of

bid specifications and blueprints is not part of the price actually paid
or payable for the imported tools and gauges; nor does it constitute an
assist to be added to the price actually paid or payable.

> Sincerely,
>
> Thomas L. Lobred
>
> Chief, Value Branch