HQ 0544547 - Application for Further Review of Protest No. ------------- - United States International Trade Commision Rulings

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HQ 544547

August 7, 1990

VAL CO:R:C:V 544547 ML

CATEGORY: VALUATION

District Director
Mobile, Al 36601

RE: Application for Further Review of Protest No. -------------

Dear Sir:

This protest and application for further review was filed against your appraisement decision in the liquidation of various electrical conduit pipe. The merchandise was purchased from merchandise was appraised pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)).

FACTS:

The merchandise in question is electrical conduit pipe. The (hereinafter referred to as the "seller"). The importer of the to as the "importer"). The parties are related within the meaning of section 402(g) of the TAA.

The merchandise was entered at its invoiced CIF value with the proper deductions made for ocean freight and insurance. The entries were liquidated pursuant to transaction value, section 402(b) of the TAA.

The importer asserts that the merchandise was inappropriately appraised under transaction value and that the proper basis of appraisement should be deductive value as found in section 402(d) of the TAA. He states that the relationship between the parties influenced the price. The importer also claims that the transactions are not arms-length in which the price is established in a manner consistent with that of unrelated parties in the industry.

If deductive value is found to be the proper basis of appraisement, the protestant contends that the merchandise should be free of duty under the Generalized System of Preferences (GSP). In this regard, the importer has submitted cost information which indicates that the sum of the cost of materials produced in ----------, plus the direct costs of processing operations performed there, exceeds 35% of the proposed deductive value of the merchandise.

ISSUE:

(1) Whether transaction value is the applicable basis of appraisement for merchandise sold between related parties.

(2) Whether the merchandise is entitled to duty-free treatment under the GSP.

LAW AND ANALYSIS:

The issue involves whether transaction value was properly used to appraise the imported merchandise. The transaction value of imported merchandise is defined in section 402(b) as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus amounts for the items enumerated in section 402(b)(1). The term "price actually paid or payable" is defined in section 402(b)(4)(A) as:

...the total payment...made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

The relevant provision with regard to related parties is section 402(b)(2)(B) which 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, if it is shown that the buyer and seller, albeit related, buy and sell from one another as if they are not related, this indicates that the price is not influenced by the relationship between the parties, and appraisement pursuant to transaction value is proper. If the price is determined in a manner which is consistent with the normal pricing practice of the industry, it is considered not to have been influenced by the relationship between the parties.

The determination that the "price actually paid or payable" is influenced by the relationship between a related buyer and seller is done on a case-by-case basis. The importer points to TAA #61 in support of his position. In that case, Customs rejected the use of transaction value between related parties. The evidence in that case, taken as a whole, established that the relationship between the parties influenced the price.

The protestant argues that he unilaterally decided the price of the merchandise. He states that under ----------- law the manufacturer was exempt from taxes so that the importer set a price for the merchandise that would transfer a substantial amount of profits to his related manufacturer. Based upon the evidence presented, we do not believe that the relationship influenced the price. From our perspective, ----------- tax law, rather than the relationship between the parties was the reason for the "price actually paid or payable" for the imported merchandise.

The protestant correctly points out, that Customs, not the importer, has the responsibility to appraise imported merchandise. Section 500(a), as amended by the TAA (19 U.S.C. 1500(a)), states:

"The appropriate Customs officer shall, under rules and regulations prescribed by the Secretary-
(a) appraise merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, or other document to the contrary not withstanding."

In the instant case, Customs officials never suggested that the prices between the importer and the manufacturer were suspect. Prior to losing their GSP status, the invoice unit values submitted to Customs were done under transaction value for these same related parties. At the time of entry, the "price actually paid or payable" between the related parties was submitted to Customs by the importer and accepted by Customs. There is no evidence that this related party transaction does not meet the requirements of transaction value under section 402(b)(2)(B) of the TAA. Therefore, there is no basis for rejecting transaction value and proceeding through the remaining bases of appraisement.

Under the GSP, eligible products of a designated beneficiary developing country (BDC) which are imported directly into the United States qualify for duty-free treatment if the sum of the cost or value of the materials produced in the BDC plus the direct costs of processing performed in the BDC is at least 35% of the article's appraised value at the time of its entry into the United States. See section 10.176(a), Customs Regulations (19 CFR 10.176(a)).

---------- is a BDC, and the merchandise is classified for tariff purposes in item 688.30, Tariff Schedules of the United States (TSUS), which is a GSP-eligible provision. There appears to be no dispute that the merchandise was imported directly to the United States from ----------. Therefore, it remains only to consider whether the conduit pipe satisfies the GSP 35% value- content requirement. The cost information prepared and submitted by the importer indicates that the sum of the cost of materials produced in ---------- plus the direct processing costs represents less than 35% of the transaction value of the merchandise. Therefore, as the merchandise does not satisfy this requirement, it may not receive duty-free treatment under the GSP.

HOLDING:

In light of the foregoing, it is our conclusion that transaction value pursuant to section 402(b) of the TAA was the proper basis of appraisement. There is no authority to reject transaction value under the circumstances. Moreover, as the merchandise does not meet the GSP 35% value-content requirement, it is not entitled to free entry under this program.

Accordingly, you are directed to deny the protest in full. 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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