Engineering and Design Work Performed Abroad Increases the Dutiable Value of Imported Goods

Many U.S. companies pay foreign engineers, designers, and developers to create the specifications, drawings, and technical files that their overseas manufacturers need to produce imported goods. When that work is performed outside the United States and is necessary for production, its value must be added to the declared customs value of the finished goods — whether or not it appears on any invoice. Companies that quietly offshore their product development without adjusting their customs declarations may be underpaying duties on every shipment, and that underpayment is a False Claims Act violation.

There is a well-understood category of customs undervaluation that most compliance professionals recognize: the company that ships its own raw materials to a foreign factory and fails to add their value back into the customs declaration. We have written about that problem separately. But there is a parallel category that is less well understood and, in our experience, more systematically overlooked: the company that pays for engineering, design, or development work performed abroad in connection with the production of goods it will later import, and never declares that work as an assist.

The legal obligation is the same in both cases. Under 19 U.S.C. § 1401a, the transaction value of imported merchandise is the price actually paid or payable to the seller, plus mandatory additions that include the apportioned value of any assist. Engineering, development, artwork, design work, and plans and sketches undertaken outside the United States and necessary for the production of the imported merchandise are explicitly listed as assists in the statute. When an importer pays for that work — directly or indirectly, in whole or at a reduced cost — and does not add its value to the customs declaration, the entry is understated. Multiply that across hundreds or thousands of entries over several years, and the underpayment can be very large.

The Linde GmbH case, which settled for $22.28 million in 2020, illustrates the point with unusual clarity. Among the allegations was that Linde had used engineers in India to perform work related to the production of goods it imported into the United States, and did not include the value of those engineering services in its customs declarations. In announcing the settlement, the First Assistant U.S. Attorney for the Eastern District of Pennsylvania specifically called out the policy rationale: valuation requirements exist, in part, to ensure that importers do not have a financial incentive to use foreign engineers instead of hiring in the United States. Bypassing those requirements by omitting engineering assists is not a technical oversight. It is a structural cost advantage obtained at the government’s expense.

What the Law Requires: Engineering Assists Under 19 U.S.C. § 1401a

The fourth category of assists under 19 U.S.C. § 1401a(h)(1)(A)(iv) covers engineering, development, artwork, design work, and plans and sketches that are: (1) undertaken elsewhere than in the United States; (2) necessary for the production of the imported merchandise; and (3) supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of the imported merchandise.

All three elements matter. The “undertaken elsewhere than in the United States” requirement means that work performed entirely within the United States by U.S.-domiciled employees, even if transmitted abroad for use in production, is generally not a dutiable assist under this category. The statute carves out work that is performed by a U.S.-domiciled individual acting as an employee or agent of the buyer and is incidental to other engineering or design work undertaken within the United States. That carve-out has limits, however. If a U.S. company sends its engineers to work in a foreign country, or pays foreign-based personnel to perform design or development work, the domestic-employee exception does not apply and the work is an assist.

The “necessary for production” requirement distinguishes between creative or conceptual work and technical work that the manufacturer cannot do without. CBP has addressed this distinction in a series of ruling letters. Purely inspirational or conceptual designs that give the buyer a general idea of what it wants are not assists — they do not rise to the level of technical instruction that a manufacturer needs in order to produce the goods. But technical files, production specifications, engineering drawings, patterns, fit documentation, and similar work product that the foreign manufacturer requires in order to actually make the goods are assists. As CBP put it in one ruling: if a foreign manufacturer cannot produce or manufacture merchandise without an importer’s designs, samples, patterns, or related materials made abroad, those materials should be included in the dutiable value of the imported merchandise.

The “supplied by the buyer” requirement is broader than it appears. The statute covers work supplied “directly or indirectly.” CBP has confirmed that work performed by a third party — a foreign design firm retained and paid by the importer — qualifies as an assist even though the importer is not the one doing the work. What matters is whether the buyer is the source of the funding and the beneficiary of the output, not whether the buyer’s own employees are holding the pencil.

How the Error Pattern Develops

Engineering and design assists are among the most systematically underdeclared category of customs additions, for a structural reason: the work product is intangible. When a company ships steel wire to a Chinese factory, the shipment generates a bill of lading, an export record, and an internal cost entry. It is traceable. When the same company pays a Taiwanese engineering firm to convert its CAD drawings into production-ready specifications for the same factory, the payment may flow through a professional services account, a licensing arrangement, or a related-party cost-sharing agreement. Nothing in that transaction automatically flags itself as a customs obligation.

The error compounds when companies offshore their product development incrementally. A U.S. company that once employed domestic engineers to develop production specifications may shift that work to lower-cost engineers in Vietnam, India, or China over time — not as part of any deliberate customs strategy, but as a simple cost-reduction measure. The customs declarations continue to reflect only the factory invoice. The engineering payments flow through a separate accounts-payable stream. No one connects the two. The result is systematic undervaluation that may persist for years before anyone notices.

Where it becomes a False Claims Act matter is the same point at which materials assists cross that line: when someone in the company knows that the engineering work is an assist and does not flag it, or when the issue is raised and the decision is made not to correct the declarations. A customs compliance manager who identifies foreign engineering payments and confirms they are production-necessary, then does nothing, has helped create the knowing underpayment that the FCA addresses. An executive who is told about the issue and instructs the team to leave the declarations unchanged has done the same.

Key Distinctions: What Is and Is Not an Engineering Assist

Because the engineering assist category involves judgment calls about what work is “necessary for production,” it is worth being specific about where the line falls in CBP’s analysis.

Supervisory and managerial services are generally not assists. A buyer’s representative who travels abroad to oversee factory operations, review production schedules, and manage the relationship with the manufacturer is performing general oversight, not production-necessary engineering. CBP has held that services directed to the management of overall plant operations are not assists because they are not integral to the production of the merchandise itself.

Quality control inspection, standing alone, is also generally not an assist. An inspector who visits a factory to check whether finished goods meet specifications is not producing engineering work necessary for production. The exception is when quality control involves production-related design or intimate involvement in the nature of the goods — when, for example, an inspector’s findings generate revised specifications that are fed back to the production line. That work product is closer to the assist line.

Technical design work — fit development, production specification creation, pattern-making, engineering drawings, and similar output — is where CBP consistently finds assists. In a line of rulings addressing apparel importers, CBP concluded that technical designers who developed production specifications, reviewed pre-production designs for fit, and ensured that manufactured goods met design intent were performing work that was necessary for production, not incidental to it. Their salaries, and the fringe benefits associated with their foreign postings, were all part of the assist value that should have been added to transaction value.

Software engineering and CAD conversion performed abroad also falls within the assist category when the output is necessary for production. In one ruling, CBP found that payments to a foreign engineering firm retained to convert technical drawings from one software format to another were a dutiable assist — the work was not clerical data entry but required professional engineering judgment and produced output the manufacturer needed to fabricate the goods.

Real Cases and the Whistleblower’s Role

The Linde case is the clearest direct precedent. The allegations included that Linde had used engineers in India in connection with the production of goods it imported into the United States and had not disclosed the value of those engineering services in its customs entries. The case settled for $22.28 million, and the relator — a purchasing and logistics manager who had raised concerns internally and been dismissed — received approximately $3.78 million. The DOJ’s statement at settlement made explicit that customs valuation rules exist specifically to prevent importers from gaining a cost advantage by substituting foreign engineering labor for domestic.

The Linde case also illustrates the evidentiary dynamic that makes engineering assists particularly traceable once someone starts looking. Engineering service payments appear in accounts payable. Cost-sharing agreements with foreign affiliates appear in intercompany accounting. Transfer pricing documentation may reflect the existence and value of technical services flowing from a U.S. parent to a foreign entity or vice versa. None of these records are generated for customs purposes, but all of them can establish that engineering work was performed outside the United States, that it was necessary for production, and that the buyer paid for it without including its value in the customs declaration.

What a Potential Whistleblower Should Look For

The employees most likely to recognize an undeclared engineering assist are those at the intersection of product development, sourcing, and finance. If you work at a company that imports finished goods and you know that engineers, designers, or technical staff located outside the United States — whether employees of a foreign affiliate, third-party contractors, or personnel at the factory itself who are paid separately by the importer — perform work that goes into the production of those goods, the following questions are worth asking.

Does the company pay for technical design, fit development, product engineering, or specification work performed abroad? Is that work necessary for the manufacturer to produce the goods — would the factory be unable to make them without it? Do the customs declarations reflect only the factory invoice, without any addition for the value of separately paid engineering or design services? Has a compliance officer, accountant, or customs broker ever raised the question of whether foreign engineering payments should be declared as assists — and if so, what happened to that question?

A gap between what the company pays for engineering services and what appears on the customs declaration is the same structural mismatch that underlies materials assist cases. Internal cost accounting, intercompany service agreements, accounts-payable records for foreign design firms, and transfer pricing documentation can all establish that undeclared value exists. As we have seen in our practice, the financial records that companies maintain for entirely unrelated purposes often tell the story that customs filings do not.