HQ 0544364 - Decision on Application for Further Review of Protest No. 2704-88-003730; Dutiability of Monies Paid for Molds - United States International Trade Commision Rulings

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HQ 544364

October 9, 1990

VAL CO:R:C:V 544364 VLB

CATEGORY: VALUATION

District Director of Customs
300 South Ferry Street
Terminal Island
San Pedro, California 90731

RE: Decision on Application for Further Review of Protest No. 2704-88-003730; Dutiability of Monies Paid for Molds

Dear Sir:

This protest was filed against your decision in the (hereinafter referred to as "the importer"). The merchandise was entered in May through October 1987, and was appraised pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(b); TAA).

FACTS:

The merchandise in question is hurricane lamp bases and crystal bowls produced by J.G. Durand (hereinafter referred to as "the manufacturer"). On October 17, 1986, the importer issued two purchase orders to the manufacturer. One purchase order covered the procurement of a hurricane lamp base mold. Under this purchase order, the manufacturer would refund one half of the $77,000 mold purchase price upon the order and completion of 300,000 bases. The entire amount was refundable if upon the order and completion of 600,000 bases.

The second purchase order was for the procurement of a mold for use in manufacturing crystal bowls. Under the second purchase order, --------- would receive a refund of one half of the $86,350 mold purchase price if 150,00 pieces were ordered and completed. The entire mold cost was refundable if 300,000 pieces were ordered and completed. However, on March 30, 1987, the second purchase order was amended to provide refunds based on the following schedule:

Quantity Purchased Amount of Refund

100,000 $28,783
120,000 $34,540
140,000 $40,312
150,000 $43,175

--------- placed the following orders and entered the hurricane lamp bases and crystal bowls that were manufactured with the molds:

Purchase Order No. Date Quantity Merchandise Entered

17414 3-6-87 304,368 Lamp Bases May11,13, 19&29,1987
17412 3-6-87 48,000 Lamp Bases NO
18555 8-4-87 192,192 Lamp Bases 9-25&28 & 10-15-87
Total 544,560

17412 3-6-87 14,400 Crystal Bowls NO
17413 3-16-87 65,928 Crystal Bowls 5-18&19-87 18556 8-4-87 40,008 Crystal Bowls 9-24&29-87 Total 120,336

On May 21, 1987, the manufacturer sent the importer a check for $38,500 as reimbursement for half of the cost of the hurricane lamp base mold. Subsequently, on October 15, 1987, the manufacturer reimbursed the importer an additional $32,694 for the hurricane lamp base mold as well as $34,204 as reimbursement for the crystal bowl mold. The net result was that the importer was reimbursed $71,194 for the hurricane lamp base mold and $34,204 for the crystal bowl mold.

The issue of whether the monies paid by the importer were part of the price actually paid or payable for the hurricane lamp bases; and what impact the reimbursements had on the appraised value of the hurricane lamp bases was addressed in HRL 543983 (IA 39-87), dated November 2, 1987. In HRL 543983, Customs held that the amount paid by the importer was part of the price actually paid or payable for the imported merchandise. In addition, Customs concluded that the agreement between the parties concerning the purchase price of the mold, and the method through which the mold would be repurchased by the seller, did not constitute a formula under 19 CFR 152.103(a)(1). Finally, Customs held that the monies returned to the seller in the form of a refund were to be disregarded in determining the transaction value of the imported merchandise because the return of the monies was was considered to be post importation rebates under section 402(b)(4)(B) of the TAA.

This protest is essentially a reconsideration of our prior ruling.

ISSUE:

Whether the monies paid to the importer by the manufacturer were paid pursuant to a formula.

LAW AND ANALYSIS:

As previously stated, in HRL 543983, Customs held that the monies paid by the purchaser to the manufacturer for the molds were part of the price actually paid or payable for the imported merchandise. The importer, in its protest submission dated September 29, 1988, agrees with this conclusion.

However, the importer disagrees "with Headquarters analysis regarding the interpretation to be given to 19 U.S.C. 1401a(b)(4)(B), the so-called Vanik Amendment, and the calculation of the amount paid for the molds" (emphasis original).

The "Vanik Amendment" contained in section 402(b)(4)(B) of TAA states the following:

Any rebate of, or other decrease in, the price actually paid or payable that is made or otherwise effected between the buyer and seller after the date of the importation of the merchandise into the United States shall be disregarded in determining the transaction value under paragraph (1).

The importer argues that "because the phrase "made or otherwise effected" is not defined, it is not definitely known whether Congress intended it to related to the time at which a rebate agreement came into existence, the time at which a buyer might qualify for a rebate under a preexisting agreement, or the time when the actual rebate is paid to a buyer". The importer further states that the legislative history concerning this provision does not clarify the Congressional intent regarding the possible application of the Amendment.

Finally, the importer contends that it is generally acknowledged that the Amendment was included in the valuation statue in reaction to representations made in the course of an antidumping matter involving televisions from Japan, and tha it was intended to prevent U.S. purchasers receiving secret or undisclosed rebates pursuant to agreements entered into after merchandise was imported, from having the rebates taken into consideration in the Customs valuation of their merchandise. The importer reaches the conclusion that "the only logical manner for interpreting the Amendment in pari materia with the GATT Code and the other provisions of the U.S. valuation statute is to limit its application to either rebate agreements entered into after goods have been imported or which are separate from an agreement to purchase goods".

We disagree with the importer's contention that the legislative history does not clarify the Congressional intent of the Vanik Amendment. The House Ways and Means Committee Report (H.R. Rep. No. 317, 96th Cong., 1st Sess. 81 (1979)) contains the following statement:

Subsequent decreases in the price actually paid or payable

During the Committee consideration of the Customs Valuation Agreement, the Members decided to provide in statutory language a prohibition on any modification of the transaction value for imported merchandise because of a subsequent rebate. Accordingly, new section 402(b)(4)(B) states that "any rebate of, or other decrease in, the price actually paid or payable that is made or otherwise effected between the buyer and seller after the date of the importation of the merchandise into the United States shall be disregarded in determining the transaction value."

In addition, the Statement of Administrative Action, specifically adopted by Congress includes the statement that "[c]hanges in a price actually paid or payable which are arrived at subsequent to the time of importation shall not be taken into account in determining a transaction value. This would apply to renegotiated, deferred quantity discounts, or rebates" (emphasis added).

The heart of the issue in this case is the relationship between the Vanik Amendment and a provision in the Customs regulations, 19 CFR 152.103. 19 CFR 152.102(a)(1) states the following:

In determining the transaction value, the price actually paid or payable will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotations, or may be arrived at by the application of a formula, such as the price in effect on the date of export in the London Commodity Market.

The importer cites several Headquarters Letter Rulings (HRL) that it contends supports its position that its contract contains a formula; and therefore, does not fall under the restrictions of the Vanik Amendment. One ruling that was decided under 19 CFR 152.103(a)(1) is HRL 543094, dated March 30, 1984. In HRL 543094, the sales contracts between the importer and the manufacturers provided that if the NT dollar was revalued or devalued in relation to the U.S. dollar by more that a certain percentage, then the importer and the manufacturers would equally split the net cost of the change.

Midway through the importations the NT dollar was devalued. Subsequently, several months after the importations ended, the manufacturers issued refunds to the importer. Customs held that in the contracts the parties had established a price that was arrived at pursuant to a formula. Therefore, the adjustments to the invoice price that were made pursuant to those contracts did not constitute rebates or decreases in the price actually paid or payable for the imported merchandise. Similar results were reached in HRL's 543252, dated March 30, 1984, and 543089, dated June 20, 1984, both involving formulas based on currency fluctuations.

The importer also cites HRL 542701 (TAA #47), dated April 28, 1982, to support its argument that the presence of a firm price for imported merchandise need not be known at importation for a formula to be applicable. In TAA #47, the importer purchased a substance that was further processed in the U.S. into pharmaceutical tablets. Under the pricing agreement between the importer and the exporter, a specific base price was agreed upon for the imported chemical. If the importer increased its resale price in the U.S. by a certain percentage , the exporter's sales price for all of the imported chemical in the importer's inventory would be retroactively increased by the same percentage. The same adjustment procedure was utilized if the importer's resale price fell below a certain level.

The importer in TAA #47 claimed that transaction value was not applicable in an effort to avoid a result in which increases in the price would be deemed as proceeds of subsequent resale under section 402(b)(1)(E) of the TAA; while the decease in price would not be taken into account because of the Vanik Amendment.

In TAA #47, Customs examined whether a the contract contained a formula under 19 CFR 152.103(a)(1) and stated the following:

In situations in which the price paid or payable is determined pursuant to a formula, a firm price need not be known or ascertainable at the time of importation, although it is necessary for the formula to be fixed at that time so that a final sales price can be determined at a later time on the basis of some future event or occurrence over which neither the seller not the buyer have any control. (emphasis added)

Although Customs held that the monies involved in TAA #47 were proceeds of subsequent resale, the underlined language quoted above clearly is relevant to the issue in the present case. That is, a formula in a contract can be acceptable under transaction value if it is a formula that is based on a future event over which neither the seller nor the buyer has any control. Clearly, HRL's 543094,543252, and 543089 cited previously concerning currency conversion formulas meet this standand.

In addition, in 19 CFR 152.103(a)(1) gives states that the prie in effect on the date of export in the London Commodity Market is an example of an acceptable means of arriving at the price actually paid or payable for the imported merchandise. The price in the London Commodity market is clearly an objective standard over which neither the buyer nor the seller has control.

The arrangement in the present case does not meet these requirements. The amount that the manufacturer will refund the importer is contingent upon how many items the importer orders. Thus, the amount to be refunded is clearly within the importer's control. Moreover, the "formula" established in the contract was never fully utilized.Thus, we hold that the contract does not establish a formula that provides a reduced amount that constitutes the price actually paid or payable under 19 CFR 152.103(a)(1).

However, we must also look at the application of the Vanik Amendment in this case. As discussed previously, we disagree with the importer's interpretation of the Congressional intent of the Amendment. The importer has cited HRL 543246, dated January 9, 1984, to support its contention that Customs supports the importer's interpretation of the Amendment. HRL 543246 involved the manufacturer refunding the difference between sea freight that was originally contemplated at the time of the contract, and the air freight that was actually used.

Customs held that the manufacturer agreed to effect the refund only after the merchandise had been imported into the U.S. Therefore, under section 402(b)(4)(B) of the TAA the transaction value of the merchandise could not be reduced to take into account the manufacturer's refund.

The importer states that in HRL 543246, Customs relied exclusively on the fact that the refund agreement had been negotiated subsequent to importation (emphasis original). While Customs did rely on this fact, clearly Customs also relied on the fact that the manufacturer actually made the payments to the importer after importation of the merchandise. The time at which the refund agreement was negotiated is not the overriding factor. Even under the importer's analysis that the Amendment was included in the TAA to preclude rebates that circumvented antidumping orders, the timing of the agreement would not be dispositive. That is, the parties could agree to the rebate scheme prior to the exportation of the goods and still circumvent the antidumping order.

Sincerely,

John Durant, Director
Commercial Rulings Division

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