Dutiable Components of Valuation: Packing

For the last two months, we have discussed issues related to valuation of imported merchandise. Last week the blog addressed assists, a dutiable component of valuation. The answer to last week’s multiple-choice question can be found at the end of this article.

Packing costs are defined as "the cost of all containers (except instruments of international traffic) and coverings of whatever nature or materials used in placing merchandise in condition, packed and ready for shipment to the United States." Packing costs are dutiable, and must be included in the value of imported merchandise. Packing costs are dutiable whether they are itemized separately on the invoice, or paid to the seller under a separate invoice. See 19 CFR 152.102(e).

The following are considered examples of dutiable packing:

• Using Cardboard boxes, Styrofoam, and pallets.
• Hanging of garments in a container
• Attachment of hangtags or price tickets; however, if supplied by a U.S. party, they may be eligible for duty-free treatment.

Extra packing that is not necessary to put the merchandise in condition ready for export is not dutiable. If a cardboard box is sufficient, but the importer also wants the goods vacuum packed, the cost for vacuum packing is not included in transaction value.

To test our understanding of this concept, let's take a look at an example.

Roller Company manufactures ball bearings that are sold to Bearings R’ Us for $300 each. Bearings R’ Us ordered 1500 ball bearings and was invoiced $450,000. Bearings R’Us requested that the ball bearings be vacuum packed before being placed in individual boxes for placement in the final cardboard box for shipping. Because of the additional packing, Roller Company submitted the invoice for the bearings showing $450,000 with the shipment and sent a separate invoice for the packing after the shipment was on the water. The separate invoice showed $1,500 for the shipping cartons and individual boxes and $2,000 for the vacuum packaging for a total of $3,500. What value should duty be calculated on?

A. $450,000
B. $451,500
C. $452,000
D. $453,500
E. None of the above.

The answer will be provided next Monday when we continue to discuss the topic of valuation.

Answer to Assists – Monday May 4, 2009
The answer is C. The value of the molds used in the production of merchandise supplied free of charge is dutiable, along with the cost of transportation of the mold from Taiwan to Japan. The value of the drawings is not dutiable since they were created in the U.S.

Dutiable Components of Valuation: Assists

An “assist” is anything of value that the buyer provides to the seller, either directly, or indirectly, and free of charge, or at a reduced cost and used in connection with the production or the sale for export of the merchandise to the United States.

The CBP Regulations, 19 CFR 152.102(a)(2), define assists as:
1. Materials, components, parts, and similar items incorporated in imported merchandise.
2. Tools, dies, molds, and similar items used in the production of the merchandise.
3. Merchandise consumed in the production of the imported merchandise.
4. Engineering, artwork, design work and plans, and sketches that are done somewhere other than in the U.S., and used in production of the imported merchandise.

Note: No work provided in (4) will be treated as an assist if the work:

a. Is performed by an individual domiciled in the U.S.
b. Is performed by that individual while acting as an employee of the buyer.
c. Is incidental to other engineering, development, artwork, design work, or plans or sketches that are undertaken in the U.S.

Assists are considered dutiable components; therefore, the value of any assist must be added to the invoice value if not already included. Part 152.102(a)(3) provides the methods for determining the value of an assist. The important thing to remember is that regardless of where the assist originates, transportation costs to the place of production by the manufacturer are part of the value of any assist. Part 152.103 (e) explains the methods for apportioning the value of assists to imported merchandise. The total value of an assist may be apportioned over:

· The number of units produced with the assist on each shipment.
· The number of units produced up to the time of the first shipment, or,
· The entire anticipated production.
· Other methods subject to GAAP and approved by CBP.

To test our understanding of this concept, let's take a look at an example.

Totally Teevee, the importer, purchases a mold in Taiwan and ships it to Japan for use in manufacturing LCD televisions. The value of the mold is $50,000, and the transportation costs from Taiwan to Japan were $1,500. An engineer working for Teevee in the U.S. designed the new televisions and the drawings, valued at $1,000 were sent via express courier to the Japanese manufacturer at a cost of $30. Teevee decided to declare the entire cost of the mold on the first shipment. The invoice from the Japanese manufacturer stated only the value for the televisions ($1,250,000) and did not include the mold or drawings. What is the dutiable value for the imported merchandise ?

A. $1,250,000
B. $1,300,000
C. $1,301,500
D. $1,301,000
E. $1,302,530
F. None of the above

The answer will be provided next Monday when we discuss another dutiable component of valuation.