(Reap. Dec. 8258)

#### University of Chicago Press *v.*United States

Entry No. 3668.

(Decided November 10, 1953)

*Barnes, Richardson & Colburn (Joseph Schwartz*and *Edward N. Glad*of counsel) for the plaintiff.

*Warren E. Burger,*Assistant Attorney General *(Samuel*D. *Spector*and *John J. Antus,*special attorneys), for the defendant.

Ford, Judge:

The merchandise involved in this appeal is described on the invoice as 200 unbound copies of a book entitled "The Small Industries of Japan.” The merchandise was exported from Shanghai, China, and entered at the port of Chicago. It was invoiced and entered at 80 cents per copy, United States currency, and was appraised at $2.14, per copy, United States currency, plus packing. The record shows that the merchandise was appraised on the basis of cost of production, and it has been agreed by the parties hereto that cost of production is the proper basis upon which to find a value for the merchandise.

The record establishes that the imported merchandise was first published in 7 pamphlets by members of the Japanese Council, which was at the time one of the 11 principal national councils comprising the Institute of Pacific Relations; that this organization was a nonpolitical, nonprofit organization organized for the purpose of studying problems of the Pacific area; that from time to time the Institute of Pacific Relations made grants of money to the different national councils to supplement their local funds for the continuation of research work; that the parent organization made a grant of $3,000 to the Japanese Council for the purpose of preparing and promulgating certain information on “The Small Industries of Japan.”

The record shows further that the Japanese Council used all of the $3,000 grant made by the Institute of Pacific Relations in the production of a series of seven separate reports on specific industries in Japan, which were printed in Tokyo by the Japanese Council as separate paper-bound pamphlets and were imported into the United States for use at the sixth annual conference of the Institute of Pacific Relations held in Yosemite Park, Calif. The submission of these pamphlets represented a complete discharge of the obligations of the Japanese Council for the original grant of $3,000. Approximately one year after the seven pamphlets were first published, the Institute of Pacific Relations placed an order with Kelly & Walsh, Ltd., of *407Shanghai, China, the exporter in this case, for 500' copies of the 7 pamphlets, 200 copies of which constituted the present importation.

After the meeting of the Institute of Pacific Relations in Yosemite Park, Calif., in 1936, it was decided to have a reprint of these pamphlets in a single volume. The pamphlets were, therefore, revised and brought up to date, with the addition of an introductory chapter. This single volume was reprinted in 1938 by Kelly & Walsh, Ltd., of Shanghai, China. As evidence of the cost of production of the involved merchandise, counsel for the plaintiff offered and there was received in evidence as exhibit 1 an affidavit of John Henry Searle, director and printing works manager of Kelly & Walsh, Ltd., with 32 years of practical experience in all branches of printing. Affiant stated as follows:

> I .am familiar with the cost of production of the books entitled “The Small Industries of Japan” which were exported by Kelly & Walsh Limited in 1938 to University of Chicago Press, Chicago, Illinois, as I was in direct charge of the printing of said books.

> The materials used in producing the said books were paper, ink, cotton thread and glue. The cost of the said materials was $-.20 (U. S. Currency) per book.

> The process employed in producing the said books consisted of typesetting, printing and book-binding. The cost of such processing was $-.15 (U. S. Currency) per book.

> The cost of materials and processing given in the two preceding paragraphs represents such cost at a time preceding the date of exportation of the books in question, which would ordinarily permit the production of said books in the usual course of business.

> The usual general expenses incurred in producing such books amounted to $-.07 (U. S. Currency) per book (or 20% of the cost of materials and processing).

> The cost of all containers and coverings of whatever nature and all other costs, charges and expenses incident to placing the said books in condition, packed ready for shipment to the United States was $-.03 (U. S. Currency) per book.

> The gross profit which was ordinarily added in the case of such books by other printers and publishers in China, at the time of the production of said books, was 25% of the cost of production ($-.11 U. S. Currency per book).

With reference to the grant of $3,000 made by the Institute of Pacific Relations in New York to the Japanese Council in 1934 for an investigation of the standards of living in specific industries in Japan, counsel for the plaintiff offered and there was admitted in evidence as exhibit 2 an affidavit by Kinkazu Saionji who, after stating that he was a member of the Japanese House of Councillors and that in 1937-38 was the Secretary of the Japanese Council of the Institute of Pacific Relations, deposed as follows:

> The Japanese Council used all of this grant [$3,000] to pay honoraria, travel and other incidental expenses to a group of Japanese research workers under the direction of Professor T. Uyeda who subsequently prepared a series of separate reports on specific industries, These separate reports were then printed in Tokyo *408by the Japanese Council at its own expense in 1936 as separate paperbound pamphlets for use at the Sixth Conference of the Institute of Pacific Relations in Yosemite Park, California, in August 1936. The submission of these printed pamphlets by the Japanese Council represented a complete discharge of its obligation for the original grant of $3,000. At that time there was no intention of publishing these pamphlets in any other form.

> It was only after the conference that it was decided by the International Secretariat of the Institute of Pacific Relations that these pamphlets should be reprinted together in a single volume. These pamphlets were revised and brought up to date by Professor Uyeda and his collaborators and a new introductory chapter was added. (The foregoing statement is confirmed by the last paragraph of the Preface to the book Small Indtjstbies in Japan.) These revised pamphlets together with the new introductory chapter constitute the textual material from which the book Small Indtjstbies in Japan was printed in 1938 (or more accurately, reprinted) by Kelly and Walsh in Shanghai.

> No additional grant was paid to Professor Uyeda and his collaborators for the revision of the chapters or for the preparation of the new introductory chapter. The only expense involved were minor clerical expense for the retyping of certain of the pages of the pamphlets and the typing of the 19 page introductory chapter. The total expenses involved in this work of revision and the typing of the new chapter amounted, I remember, to something like 360 yen, which is at the then prevailing rate of 29 cents to the yen, equivalent to a little over $100.

Counsel for the plaintiff contends that:

> If any part of the $3,000 grant were used in the preparation of any material, it was for the textual material printed in the seven pamphlets, from which the unbound books in the present case were reprinted. That $3,000 grant could only enter into the cost of production of the seven pamphlets and therefore could not be included in the cost of printing of the book involved herein.

In support of the above contention, counsel cites the case of *Oxford University Press, N. Y., Inc.*v. *United States,*36 C. C. P. A. (Customs) 102, C. A. D. 405. In that case, the merchandise consisted of 5,000 copies of the Oxford Dictionary of Quotations in unbound form, which was part of an edition of 20,000 copies. The nonrecurring expense, such as composition, editorial, corrections, proofreading, and indexing, was prorated by the appraiser in arriving at the cost of production value over only 20,000 copies, although the importer contended that, as 65,000 copies were to be printed from the finished plates in the ordinary course of business, this nonrecurring expense should be prorated over the 65,000 copies. On this phase of the case, the Court of Customs and Patent Appeals said:

> There is nothing in the record from which it could even be implied that 65,000 copies of the dictionary were to be printed. It is true, as is shown from the quoted portion of appellant’s exhibit, that 47,320 copies had been printed. But as far as the United States Appraiser of Merchandise, the tribunals of the United States Customs Court and this court are concerned, at the time of the exportation, 20,000 copies only had actually been produced.

> ***** * *

> *409It is immaterial that the dutiable value of the present importation, resulting from the action of the appraiser, may result in a lower rate of duty for subsequent importations of the same merchandise. If such a situation should arise, it seems to us that appellant would be entirely “squared off” on the total over-all costs.

In view of the holding in the *Oxford University Press*case, *supra,*it must be held in this case that when the pamphlets were imported into the United States for use at the sixth annual conference of the Institute of Pacific Relations held at Yosemite Park in California, any part of the $3,000 grant used for the gathering of the textual material in these pamphlets was then and there prorated in the cost of production in finding a value for the pamphlets at that time and cannot again be taken by prorating it a second time in the cost of production of the unbound books or pamphlets involved herein. It would, therefore, appear that the only cost that can be attributed to the textual material must be limited to the additional expense to the Institute of Pacific Relations, as set out in plaintiff’s exhibit 2.

Accepting as correct the figures in plaintiff’s exhibit 2, and following the formula in the case of *Carey & Skinner, Inc.*v. *United States,*3 Cust. Ct. 600, Reap. Dec. 4663, the correct cost of production of the merchandise herein is:

> Cost of materials_$0. 53

> General expenses, not less than 10 per centum_ 0. 053

> 0. 583

> Profit, not less than 8 per centum_ 0. 047

> 0. 630

> Allocation of cost of textual materials_ 0. 208

> Cost of production_ 0. 838 or $0.84 per copy, plus packing of $0,075 per copy.

Based upon this record, I find as facts:

1. That the merchandise in this case consists of 200 printed unbound copies of a book entitled “The Small Industries of Japan.”

2. That there is no foreign, export, or United States value for said merchandise.

3. That the Institute of Pacific Relations was the manufacturer of the instant merchandise.

4. That the cost of materials to the Institute of Pacific Relations for 500 copies of the instant pamphlets amounted to $264.60.

5. That the general expenses are 10 per centum of the cost of materials, and the profit is 8 per centum of the cost of the materials and general expenses.

6. That the cost of the textual material or the nonrecurring cost amounted to $104.40, and the cost of the containers, being two cases in which the involved merchandise was shipped, amounted to $7.50 each.

*4107. That the cost of production of the 200 unbound copies in question amounted to $0.84 per copy, plus packing.

I therefore hold as matter of law:

1. That the involved merchandise is properly dutiable on the basis of cost of production.

2. That the said cost of production is as set forth in finding of fact No. 7.

Judgment will be rendered accordingly.