HQ 0544239 - Decision on Application for Further Review of Protest No. 3801-5-002675 - United States International Trade Commision Rulings

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HQ 544239

November 18, 1988

CLA-2 CO:R:CV:V 544239 VLB

CATEGORY: VALUATION

District Director of Customs
Detroit, Michigan 48226-2568

RE: Decision on Application for Further Review of Protest No. 3801-5-002675

Dear Sir:

This is in response to your memorandum of September 28, 1988, (PRO-1-COD D), concerning the subject protest. The protest was filed against your decision in the liquidation of entries made by the importer. The merchandise was appraised pursuant to section 402(f) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(f); TAA). You determined that the appraised value of the merchandise was the price paid by the seller plus brokerage and Canadian inland freight to the Canadian seller's plant.

FACTS:

The merchandise in question is gate valves. The valves are manufactured in Japan and sold for export to the seller in Canada. The seller in turn sells the valves to the importer for the same price that the seller paid to the manufacturer.

The seller and the importer are related parties under section 402(g) of the TAA. Nevertheless, the importer contends that it has a purchase agreement with the buyer to sell the merchandise at cost between the two companies, i.e. the purchase price from the Japanese manufacturer, and that transaction value is the appropriate appraisal method.

You have concluded that neither the transaction value nor any of the other enumerated appraisement methods are applicable to this transaction, and therefore the merchandise must be appraised under section 402(f) of the TAA.

ISSUE:

Whether appraisement of the imported merchandise pursuant to section 402(f) of the TAA was proper.

LAW AND ANALYSIS:

Transaction value, the preferred method of appraisement is defined in section 402(b)(1) of the TAA as the "price actually paid or payable for merchandise when sold for exportation to the United States . . . ." Section 402(b)(2)(B) states the following:

The transaction value between a related buyer and seller is acceptable . . . if an examination of the circumstances of the sale of the imported merchandise indicates that the relationship between such buyer and seller did not influence the price actually paid or payable; . . .

In determining whether the relationship between the parties influences the price of imported merchandise, the buyer and seller must prove that although they are related, they buy and sell from one another as if they are not related. There are two methods for determining whether the transaction value is acceptable. The first method involves an examination of the circumstances of sale of the imported merchandise to determine if the relationship between the buyer and the seller influenced the price actually paid or payable. The second method involves using a series of test values as a basis of comparison to the transaction value. If the transaction value closely approximates any one of the test values, it will be accepted.

In this case, it appears that the parties have not met either of the foregoing criteria. First, the price is not settled in a manner consistent with the seller's normal pricing practice. The seller admits that it incorporates a 25 percent profit margin into the price for sales to non-related parties, but excludes the profit margin when it sells to the importer. Second, the parties failed to submit any evidence that indicated that the price is consistent with industry practice or that the alleged transaction value closely approximated a test value. Therefore, transaction value cannot be used to appraise the merchandise.

Further, because there is no evidence of sales of identical or similar merchandise to unrelated purchasers in the U.S., there is no value that can serve as a basis of appraisement under transaction value of identical or similar merchandise. Thus, transaction value pursuant to sections 402(b) and (c) were properly eliminated as means of appraisement.

However, prior to resorting to a section 402(f) appraisement, it is necessary to proceed sequentially through the remaining bases of appraisement. If it becomes necessary to appraise pursuant to section 402(f) of the TAA, the value should be based, to the greatest extent possible, on previously determined value. See, 19 CFR 152.107(a).

In this case, deductive value is not an available method of appraisement. Deductive value requires a value at which the merchandise is resold in the U.S. In this case, there is no evidence to indicate when or at what price the valves were sold in the U.S.

Likewise, computed value cannot be used to appraise the merchandise. Under computed value the following items are added together: (1) the cost or value of the materials and the fabrication employed in the product; (2) the profit and general expenses equal to that usually reflected in sales of merchandise of the same class as the imported merchandise; (3) the value of any assists and (4) the packing costs. In the present case, there is no evidence that establishes any of these amounts.

Therefore, the only method left for appraising the merchandise is section 402(f), the method used to liquidate the entry. We find that a reasonable approach was used in determining this value. Specifically, the appraisement was based on the seller's latest cost sheet which stated the price the seller had paid for the merchandise. Brokerage and Canadian inland freight to the seller's plant were then added to arrive at the final value of the merchandise.

HOLDING:

In light of the foregoing, it is our conclusion that transaction value pursuant to section 402(b) of the TAA was properly rejected as a means of appraisement. Moreover, the method established by Customs under section 402(f) in liquidating the subject entry was proper under the circumstances presented.

The protest should be denied. A copy of this decision should be attached to Form 19, Notice of Action to be sent to the protestant.

Sincerely,

John Durant, Director,
Commercial Rulings Division

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