H311213

HQ H311213 February 10, 2021 OT:RR:CTF:VS H311213 EE CATEGORY: Valuation Mark S. Stepien Assistant Center Director, Automotive and Aerospace Center of Excellence and Expertise 477 Michigan Avenue, Room 200 Detroit, MI 48226 RE: Internal Advice; Transaction Value; Allocation of Tooling Assists Dear Mr. Stepien: This is in response to your request, dated May 27, 2020, seeking internal advice regarding the tooling allocation methodology used by the importer [X]. We have taken into consideration the information and materials presented to us in the memorandum requesting internal advice including the Focused Assessment Pre-Assessment Survey Report Number [X] on the importer, dated March 31, 2020, prepared by the Office of Regulatory Audit; the importer’s tooling factor calculation; and the importer’s comments on the internal advice request on tooling allocations. The importer has requested that certain information submitted in connection with this internal advice request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets and all attachments to this internal advice request, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling. FACTS: [X] is an importer of [X] systems and components. It is also involved in extensive engineering, industrial design research, joint ventures, and manufacturing. The importer provides tooling to its overseas manufacturers of the [X] systems and components that it imports. The methodology for the tooling factor allocates the importer’s annual tooling expenditures to imported merchandise in the same proportion as its import value to overall corporate spend. To calculate the annualized tooling factor, the importer uses the following data sources: The importer’s total corporate material expenditures (“CMAT Spend”) associated with its U.S. business and recorded on its books; The importer’s total entered value for all importations made into the United States during the same time period based on a review of ACE records reflecting the values declared at the time of entry; and The importer’s total tooling expenditures (“Tooling Spend”) reflecting the cost of all tooling and tooling expenditures. Using the sources of data described above, the importer calculates a tooling factor which is applied to imports made during the same time period at the time of reconciliation. The factor is determined as follows: Step 1 – Calculate the ratio of total entered value to CMAT Spend to determine the ratio of international to overall purchases. Step 2 – Apply the ratio of international to overall purchases against the Tooling Spend already adjusted to remove tooling associated with the importer’s Mexican operations. Tooling consists of all tools and other production-related items which the importer purchases from both foreign and domestic sources for use in both internal and external production, while tooling-related expenditures consist of reimbursements and any other tooling-oriented payments made by the importer to both related and non-related vendors in furtherance to their production activities. The importer states that these costs can be isolated to solely those expenditures associated with the importer’s U.S. operations and that the total Tooling Spend is adjusted to remove all tooling associated with its Mexican operations. The importer is able to specifically identify all tooling destined to a Mexican supplier based on the need to track such tooling under Mexico’s IMMEX program. CBP determined that using a tooling factor that prorates tooling assists across all imports rather than to the specific product(s)/product line(s) the assists were provided for, which does not take into account the actual duty rate(s) that may have been applicable, is not an acceptable method to allocate tooling. Rather, CBP found that the tooling should be applied more specifically to the imports that were manufactured using the tooling, so the appropriate duty rates and countries of origin could be applied. The purpose of this internal advice is to determine whether the use of a tooling factor to allocate tooling assists across all imports, other than from related parties in Mexico, is an acceptable method of allocating tooling assists under 19 U.S.C § 152.103(e)(1). ISSUE: Whether the tooling allocation methodology used by the importer is acceptable in accordance with 19 U.S.C § 152.103(e)(1). LAW AND ANALYSIS: Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. § 1401a). The primary method of appraisement is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus five enumerated additions. 19 U.S.C. §1401a(b)(1). The price actually paid or payable shall be increased by the amounts attributable to the five statutory additions enumerated in 19 U.S.C. § 1401a(b)(1)(A) through (E) only to the extent that each such amount is not otherwise included within the price actually paid or payable. 19 U.S.C. § 1401a(b)(1). One of the enumerated statutory additions to the price actually paid or payable is an “assist.” An “assist” is defined in 19 U.S.C. § 1401a(h)(1) as follows: (1)(A) The term “assist” means 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. There is no dispute in the instant case that the tooling that the importer provides to the foreign manufacturers of the [X] systems and components are assists that must be added to the price actually paid or payable. The only question is whether the importer’s proposed method of apportionment is acceptable to CBP. CBP has authority to accept a method of apportionment of assists that is “[m]ade in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles.” See 19 C.F.R. § 152.103(e)(1). The total value of the assist may be apportioned over the first shipment (if the importer wishes to pay duty on the entire value at once), the number of units produced up to the time of the first shipment, or the entire anticipated production. In addition to these three methods, the importer may request some other method of apportionment in accordance with generally accepted accounting principles. 19 C.F.R. § 152.103(e)(1) provides the following with regard to apportionment of assists: The apportionment of the value of assists to imported merchandise will be made in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles. The method of apportionment actually accepted by Customs will depend upon the documentation submitted by the importer. If the entire anticipated production using the assist is for exportation to the United States, the total value may be apportioned over (i) the first shipment, if the importer wishes to pay duty on the entire value at once, (ii) the number of units produced up to the time of the first shipment, or (iii) the entire anticipated production. In addition to these three methods, the importer may request some other method of apportionment 

Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. § 1401a). The primary method of appraisement is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus five enumerated additions. 19 U.S.C. §1401a(b)(1). The price actually paid or payable shall be increased by the amounts attributable to the five statutory additions enumerated in 19 U.S.C. § 1401a(b)(1)(A) through (E) only to the extent that each such amount is not otherwise included within the price actually paid or payable. 19 U.S.C. § 1401a(b)(1). One of the enumerated statutory additions to the price actually paid or payable is an “assist.” An “assist” is defined in 19 U.S.C. § 1401a(h)(1) as follows:(1)(A) The term “assist” means 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.There is no dispute in the instant case that the tooling that the importer provides to the foreign manufacturers of the [X] systems and components are assists that must be added to the price actually paid or payable. The only question is whether the importer’s proposed method of apportionment is acceptable to CBP.CBP has authority to accept a method of apportionment of assists t