H313988

H313988 February 18, 2022 OT:RR:CTF:VS H313988 JMV Bethany Hovis [XXXXXXXXXXXXXX] 1451 McMahon Drive Neenah, WI 54956 RE: Additions to Transaction Value; Costs included in Computed Value Dear Ms. Hovis: This is in reply to your letter dated September 15, 2020, on behalf of [XXXXXXXX] (U.S. Entity) and [XXXXXXXXXXX] (“the Foreign Entity”), (collectively “the Company”), in which you requested a ruling, pursuant to 19 C.F.R. Part 177, regarding whether certain costs should be included in the customs value of imported health and hygiene products. You have asked that certain information submitted in connection with this 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 in this ruling or in the attachments to this ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling. FACTS: The entities involved with the transactions at issue are part of a larger global hygiene and health company called [XXXXXXXXXX] (“Parent Company”). The products at issue are orthopedic, wound care, and vascular products. The products at issue are manufactured by [XXXXXXXXXXXXXXX] (“Foreign Manufacturer”) in Mexico. Both the U.S. Entity and the Foreign Entity provide the materials to the Foreign Manufacturer on consignment and the Foreign Manufacturer processes the material into the completed goods. The Foreign Manufacturer will also provide quality control and warehousing services for the Company. The Foreign Manufacturer will bill U.S. Entity and Foreign Entity directly for processing and services. The completed goods are then imported by the Foreign Entity, which acts as a foreign importer, or the U.S. Entity. As there is no acceptable sale between the Foreign Manufacturer and the U.S. Entity or Foreign Entity, the Company would like to use the computed value method to determine the customs value when entering the goods into the United States. You asked whether certain costs should be included when the Company is determining the computed value. The following costs are under consideration: Material costs, including, but not limited to yarn, chemicals, gauze, fabric; Direct labor costs, including the salary and benefits of the Foreign Manufacturer’s employees; Indirect labor costs at the Foreign Manufacturer; Fixed overhead costs, including depreciation, maintenance and repair, human resources, intercompany recharges, information technology, travel expenses, insurance and fees and risk and safety costs at the Foreign Manufacturing facility; Variable overhead costs include energy, machinery maintenance, consumable materials, molds, dyes for artwork on the packaging of the manufactured products, tooling, and warehouse costs at the Foreign Manufacturing facility; Costs for services related to global quality assurance, regulatory affairs, logistics, warehousing and sourcing of wound care products; A fee charged by the Foreign Manufacturer agreed to under a contract manufacturing agreement between the foreign manufacturer and the importing parties; Global research and development costs, which include costs incurred by the Company for support services for the global research and development personnel salary and benefits, depreciation on machinery and equipment and travel & training for this function (the Company would base this value on the percentage of global research and development costs equal to the percentage of U.S. sales to worldwide sales); Global marketing / advertising and promotion costs, which includes support services for global marketing personnel salary, social costs, travel, and training for this area of the business. Global advertising and promotional communications are specific to the compression function (the Company would base this value on the percentage of global marketing / advertising and promotion costs equal to the percentage of U.S. sales to worldwide sales); Global brand, innovation, and sustainability (“GBIS”) costs, which include intellectual property costs related to the company brand, support services for personnel salary and social costs, travel, training, and intellectual property (the Company would base this value on the percentage of GBIS costs equal to the percentage of U.S. sales to worldwide sales); Royalty paid to the individual [XXXXXXX] for vascular products which is 2.5% of all the Company’s 3rd party net sales of [XXXXXXX] vascular products; and Sales commission costs for domestic sales of orthopedic products in the United States. The U.S. Entity pays this commission to [XXXXXXXXXXX] (“U.S. Sales Agent”). Sales commissions are based on a percentage of sales as defined in the contract terms. This sales commission is only at issue for orthopedic products. According to the Company, the costs that are designated “global” costs are incurred by various entities within the larger parent company. These costs are not billed to any of the entities involved in that transactions at issue but the Company would like to know whether they must be included when determining an appropriate customs value. The importing parties also import goods purchased from other foreign related parties and declare the related party sales price under the transaction value method. You ask whether the following costs should be added as assists or other additions under transaction value: Global research and development, Global marketing, advertising, and promotion; Global brand, innovation, and sustainability costs; and Sales commissions for domestic sales of orthopedic products after importation to the United States. The company provided the following documents for review: Manufacturing agreements, Transfer pricing policy, Membership Interest Purchase Agreement (“MIPA”) and other financial documents, regarding the purchase of an outside company, Company organizational chart, Sales agent agreement, Sales orders, Commercial invoices, and Shipping manifests. ISSUE: Whether the aforementioned costs should be added to the customs value as an assist when the transaction value method is used. Whether the aforementioned costs should be added to the customs value as a cost when the computed value method is used. LAW AND ANALYSIS: Transaction Value Merchandise imported into the United States is appraised for customs purposes 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 amounts for certain statutorily enumerated additions, to the extent not otherwise included in the price actually paid or payable. See 19 U.S.C. § 1401a(b)(1). When transaction value cannot be applied, then the appraised value is determined based on the other valuation methods in the order specified in 19 U.S.C. § 1401a(a). The enumerated statutory additions to the price actually paid or payable are listed in 19 CFR § 152.103(b)(1) and include: (i) The packing costs incurred by the buyer with respect to the imported merchandise; (ii) Any selling commission incurred by the buyer with respect to the imported merchandise; (iii) The value, apportioned as appropriate, of any assist; (iv) Any royalty or license fee related to the imported merchandise that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States; and (v) The proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller. No other additions other than those specifically enumerated may be added to the price actually paid or payable. 19 CFR § 152.103(b)(2). The Company states that in imports of goods from other relat

Transaction ValueMerchandise imported into the United States is appraised for customs purposes 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 amounts for certain statutorily enumerated additions, to the extent not otherwise included in the price actually paid or payable. See 19 U.S.C. § 1401a(b)(1). When transaction value cannot be applied, then the appraised value is determined based on the other valuation methods in the order specified in 19 U.S.C. § 1401a(a). The enumerated statutory additions to the price actually paid or payable are listed in 19 CFR § 152.103(b)(1) and include:(i) The packing costs incurred by the buyer with respect to the imported merchandise;(ii) Any selling commission incurred by the buyer with respect to the imported merchandise;(iii) The value, apportioned as appropriate, of any assist;(iv) Any royalty or license fee related to the imported merchandise that the buyer is required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States; and(v) The proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller.No other additions other than those specifically enumerated may be added to the price actually paid or payable. 19 CFR § 152.103(b)(2). The Company states that in imports of goods from other related entities, transaction value is the appropriate method of customs valuation. However, the Company is unsure whether the following costs should be added to the price actually paid or payable as required by in 19 CFR § 152.103(b):1. Global research and development,2. Global marketing, advertising, and promotion;,3. Global brand, innovation, and