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HQ 544375


July 6, 1990

VAL CO:R:C:V 544375 ML

CATEGORY: VALUATION

District Director of Customs
Laredo, Tx 78044-3130

RE: Response to Request for Internal Advice Regarding the Appraisement of Cantaloupes

Dear Sir:

This is in response to your request for internal advice, dated July 8, 1988 (APP-9-L:CO CS), regarding the appraisement of cantaloupes from Mexico. National Import Specialist --------- ------ made a detailed submission regarding this matter on July 21,1989. Various purchasing arrangements are described, some with contracts and some which include cash advances by the buyer to the seller. The response contained herein, addresses these general purchasing arrangements. We regret the delay in responding.

FACTS:

Various purchasing agreements exist between the buyer and seller of fruits and vegetables from Mexico. Often cash advances (sometimes referred to as "advances,""advance payments," or "interest free loans") are made by the buyer to the seller. The existence of these payments or even their amounts are rarely disclosed without a special request from Customs. The seller/grower uses this money in whatever manner it wishes, but often in land preparation, seed purchase, crop maintenance, harvest and packing. The buyer may put thousands of dollars up front without knowing how the crop will fare or what the market will command. Recovery of these advances begins when deliveries are made and can take several forms: reduction of payment of individual invoices, weekly settlements, end of season settlements, or a combination of the above. Should the crop be poor or fail, the buyer carries that loss over to the next season.

Buyers often refer to a "set" or "market" price as the basis for their payment, i.e., the price actually paid or payable. Neither "price" is verifiable as they are never published. Identical merchandise, shipped from the same region, on the same day, will often be invoiced and entered at different prices. Additionally, two invoices are generally prepared for each shipment. One invoice is for the Mexican government (called the "Divisa" invoice) and the other is that from which payment is made from the buyer to the seller. The Divisa invoice is about 1/2 that of the payment invoice. At the time of entry, the broker presents the Divisa invoice to Customs along with a worksheet adjusting the values to the price actually paid. Often these worksheets have higher amounts for duty purposes.

ISSUE:

Whether transaction value is the proper method for the appraisement of the merchandise?

LAW AND ANALYSIS:

The primary basis of appraisement is transaction value. Transaction value is defined under section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979, TAA; as the "price actually paid or payable for the merchandise when sold for exportation to the United States..." (emphasis added). This is more specifically defined in section 402(b)(4)(A)) of the TAA (19 U.S.C. 1401a(b)(4)(A)), as the following:

The term "price actually paid or payable" means the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

In order to establish transaction value one must know the amount actually paid or payable to the seller. Generally speaking, it is the position of the Customs Service that all moneys paid to the foreign seller are part of the "price actually paid or payable" for the imported merchandise. Thus, if the buyer is advancing cash amounts to the seller to begin the production of merchandise, those advances will be treated as being part of the "price actually paid or payable" for the imported merchandise. While these advances are sometimes called "loans", they are, in fact, payments for the produce made in advance of receipt. These advances are, therefore, dutiable. Where a contract exists, and prices and the amount and means of recovering the advance are clear, we are satisfied appraisement under transaction value is appropriate.

In situations where transaction value cannot be determined, or cannot be used, section 402(a)(B) provides for the transaction value of identical merchandise. The term "identical merchandise' is defined in section 402(h)(2)(B) as:

...merchandise that is identical in all respects to, and was produced in the same country as, but not produced by the same person as, the merchandise being appraised.

If a transaction value for identical or similar merchandise under section 402(c) is available, then appraisement pursuant to this section is proper. Of course, it is necessary that sufficient information be available in order for Customs to make any adjustment that may be necessary 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. The submission of a Divisa invoice to Customs, accompanied by an adjusted worksheet that cannot be verified, does not adequately provide the price actually paid or payable. By copy of this response, we are forwarding to the Director, Office of Trade Operations, the question of the continued acceptability of these invoices.

In situations where the total amount for cash advances cannot be determined or where contracts for the sale of merchandise have no stated prices, transaction value does not exist.

HOLDING:

Transaction value may be used in those cases where cash advances made are to the seller by and for the benefit of the buyer, if the amount and means of recovering these advances are clear. Where no agreed upon price or a bona fide formula for determining the price exists, or where cash advances are made but the amount is not disclosed, transaction value under section 402(b) does not exist.

Sincerely,

John Durant, Director
Commercial Operations Division

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