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HQ 544469

August 20, 1990

VAL CO:R:C:V 544469 ML

Category: VALUATION

District Director
Seattle, Washington

RE: Decision on Application for Further Review of Protest No. 3001-6-000149

Dear Sir:

This protest was filed against your decision in the liquidation of various entries made by Kitamura Machinery of U.S.A., Inc., a machine tool importer. The merchandise was manufactured in Japan by Kitamura Machinery Co., Ltd. The merchandise was appraised pursuant to section 402(d) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(d); TAA).

FACTS:

The imports in question are machining centers and other machine tools. These machine tools were manufactured in Japan by Kitamura Machinery Co., Ltd. (hereinafter referred to as the "manufacturer") and consigned to Kitamura Machinery of U.S.A., Inc. (hereinafter referred to as the "importer"). The manufacturer shipped the merchandise either to the importer who warehoused, serviced, and set a final price for the goods to be charged to the ultimate purchasers in the United States, or to an unrelated distributor. After selling the merchandise at the final price, the distributor deducted an 18% commission and remitted the remaining 82% of the price to either the manufacturer or the importer. In the latter case, the importer then remits the 82% to the manufacturer who then pays the importer a 3% commission. If the 82% was sent from the distributor to the manufacturer directly, the manufacturer still sends 3% of the final price to the importer.

ISSUES:

(1) Whether transaction value of identical, or of similar merchandise or deductive value is the proper method for the appraisement of the merchandise?

(2) Whether the commissions paid are those which are usually paid in connection with sales in the United States and would, therefore, be deductible under deductive value?

(3) Whether the costs associated with the international shipment of merchandise were in fact deducted?

(4) Whether the actual costs associated with transportation and insurance are deductible with respect to shipments of merchandise from the place of importation to the place of delivery in the United States?

LAW AND ANALYSIS:

The first issue involves whether the transaction value of identical, or of similar merchandise or deductive value should be used to appraise the entries. The fact that the imported merchandise is consigned rather than sold is not in and of itself a sufficient basis for denying the use of transaction value of identical or similar merchandise pursuant to section 402(c)(2). (See Headquarters Ruling Letter 544361 EK, dated August 22, 1986) Section 402(c) of the TAA defines the transaction value of identical merchandise, or of similar merchandise as the transaction value of imported merchandise that is either identical or similar merchandise to that which is being appraised and is exported to the United States at or about the time that the merchandise being appraised is exported to the United States. The relevant portion of section 402(c) states the following:

Transaction value determined under this subsection shall be based on sales of identical merchandise or similar merchandise, as the case may be, at the same commercial level and in substantially the same quantity as the sale of the merchandise being appraised...Section 402(c)(2).

Of course, it is necessary that sufficient information be available in order for Customs to make any adjustment that may be needed pursuant to section 402(c)(2). If Customs is not satisfied that the relevant information is available, the use of transaction value of identical or similar merchandise for appraisement purposes is not proper and will be disallowed. In the instant case, the importer submitted a "computer runout" as evidence of sales of identical or similar merchandise sold to an unrelated buyer in the United States and exported at or about the time of exportation of the merchandise under protest. We do not believe this evidence to be persuasive as each machine was different and contained numerous additional features.

Deductive value is the next basis of appraisement to be used, unless the importer designated, at entry summary, computed value as the prefered method of appraisement. Under section 402(d)(2)(A)(i) and (ii), deductive value is the price at which the merchandise is sold in the condition as imported at or about the date of importation of the merchandise being appraised, sold in the greatest aggregate quantity at or about such date, or before the close of the 90th day after the date of such importation. The unit price at which merchandise is sold in the greatest aggregate quantity is the unit price at which such merchandise is sold to unrelated persons, at the first commercial level after importation. The sales price at that level is then reduced by amounts specified under section 402(d)(3)(A) of the TAA of 1979.

Under section 402(d)(3)(A), the price is reduced by amounts equal to:

(i) any commission usually paid or agreed to be paid, or the addition usually made for profit and general expenses, in connection with sales in the United States of imported merchandise that is of the same class or kind, regardless of the country of exportation, as the merchandise concerned;

(ii) the actual costs and associated costs of transportation and insurance incurred with respect to international shipment of the merchandise concerned from the country of exportation to the United States;

(iii) the usual costs and associated costs of transportation and insurance incurred with respect to shipments of the merchandise concerned from the place of importation to the place of delivery in the United States, if such costs are not included as a general expense under clause (i);

(iv) the customs duties and other Federal taxes currently payable on the merchandise concerned by reason of its importation, and any Federal excise tax on, or measured by the value of, such merchandise for which vendors in the United State are ordinarily liable,...

The protestant asserts that the distributor purchased the machinery from the importer at an "adjusted price" then sold the goods to the ultimate purchaser at a "final price". However, under the facts submitted there does not appear to be a bona fide sale between the importer and the distributor. It is the subsequent sale which takes place between unrelated parties which must be looked to so that the deductive value of the merchandise can be established.

After the merchandise is sold to the ultimate U.S. purchaser, the distributor deducts an 18% commission from the final price paid, and remits the remainder to either the importer or to the manufacturer. When the manufacturer is given the entire remainder, he later remits 3% to the importer. Whether these commissions are the type usually paid or agreed to be paid in connection with sales in the United States of imported merchandise that is of the same class or kind, regardless of the country of exportation is a question of fact which shall be determined by the appraising officer.

As previously discussed, the first commercial level after importation is the sales price from which any deductions will be made. Here, the first commercial level at which a sale took place was the sale made to the United States purchaser, and it is the commissions associated with that sale which are deducted from the sales price. If the 18% commission taken by the distributor and the 3% remitted to the importer are the commissions which directly relate to the sale and are usually paid for this type of merchandise, then they will be deductible pursuant to section

The protestant asserts that no deduction was made for the actual costs associated with the international shipment of the merchandise. However, the actual costs with respect to the movement of the merchandise from Japan to the United States were deducted pursuant to section 402(d)(3)(A)(ii). The importer further contends that no deduction was made for the costs and associated costs of transportation and insurance incurred with respect to shipment of the merchandise from the port of Seattle to the Kitamura U.S.A. warehouse as provided by section 402(d)(3)(A)(iii). While the usual costs associated with U.S. inland freight would be allowable, the importer has failed to meet his responsibility to provide actual cost figures. The invoices state identical cost figures, regardless of whether the merchandise is being shipped to the distributor or directly to the importer's warehouse.

HOLDING:

From the facts provided, it is our conclusion that the basis of appraisement is deductive value, under section 402(d) of the TAA, when the merchandise concerned is sold within 180 days after the date of importation. The base price being determined when the merchandise is sold to unrelated persons at the first commercial level after importation. In the instant case, this sale occurred when the United States purchaser purchased the goods. The commissions associated with this sale will be deductible, if the appraising officer determines that the commissions paid to the importer and the distributor are of the type usually paid in connection with sales of this kind in the United States. Additionally, those costs associated with the international shipment of the merchandise were appropriately deducted from the price prior to the imposition of duties. As no information was submitted reflecting those costs actually incurred for domestic inland freight, they will not be deducted.

Accordingly, you are directed to grant this petition in part and to deny this petition in part. 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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