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HQ 544450

November 5, 1990

VAL CO:R:C:V 544450 ML

CATEGORY: VALUATION

District Director of Customs
Seattle, Wa 98174

RE: Decision on Application for Further Review of Protest No. 3004-88-000017

Dear Sir:

This protest was filed against your decision in the liquidation of various entries made by C.F. Liebert, Inc. on behalf of Gordon Hunter Knitwear, Inc.(hereinafter referred to as the "importer"). The imported merchandise 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:

Certain shipments of wool knit sweaters were manufactured in the United Kingdom by Dalkeith Knitwear, Inc.(hereinafter referred to as the "manufacturer"). The importer, a Canadian company, purchased the sweaters from the manufacturer and imported them into the United States. The protestant (the "broker") performs warehousing and distribution services for the importer and Aljean of Canada, Ltd., through its United States division, Aljean, Inc. Aljean, Inc. is granted exclusive distribution rights to the manufacturer's products purchased by the importer. Aljean, Inc. never holds title to the merchandise. In cases where sweaters were pre-sold to United States purchasers, title passed from the importer to the purchaser at the time of delivery; and in the case of merchandise that is warehoused in the United States pending its sale to United States purchasers, the importer retains title. The entries covered by this Application for Further Review (AFR) were the subject of Headquarters Ruling Letter (HRL) No. 543624, dated August 26, 1987, also cited as Internal Advice (IA) 70/85.

ISSUE:

(1) Whether the sale for exportation of the merchandise occurred between the importer and the United States purchasers as was found to be the case in IA 70/85?

(2) Whether the merchandise was appraised using prices that were inaccurate?

LAW AND ANALYSIS:

In IA 70/85, Headquarters held that the transaction which caused the merchandise to be exported to the United States was the sale between the importer and the United States purchasers, which included the selling commissions received by Aljean, Inc. as part of the appraised value. We went on to say that where the merchandise was exported to a warehouse in the United States without any U.S. purchasers prior to that exportation, the transaction value will be the "price actually paid or payable" between the importer and the manufacturer.

In IA 70/85, we explained that transaction value, the primary means of appraisement under the TAA, 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 certain enumerated additions. The transaction to which the phrase "when sold for exportation to the United States" refers is the transaction which most directly causes the merchandise to be exported to the United States. (See TAA #57, Headquarters Ruling No. 542928, dated January 21, 1983).

The protestant asserts that we misunderstood the chain of events as between the manufacturer and the importer, specifically, as regards the timing of reservation of factory space and in hand purchase orders. We do not agree with this assertion. The transaction which caused the merchandise to be exported was the sale between the manufacturer and the importer, and not the mere reservation of factory space. Assuming that the relationship between the parties did not influence the price actually paid or payable, the sales price between the manufacturer and the importer was the basis for transaction value for the warehoused merchandise. If the situation arises where items are transhipped through Canada and a contingency of diversion exists, the import specialist will need to determine when the sale for exportation to the United States takes place.

The protestant claims that there was a transfer of title between Aljean, Inc. and the importer. As regards this claim, we affirm the initial conclusions drawn in IA 70/85. The documents submitted in this AFR do not substantiate this claim. Additionally, monies deposited to an account do not demonstrate that control over the merchandise has been transferred. Notwithstanding assertions to the contrary, Aljean, Inc. is merely acting as an agent. Pre-sold sweaters are delivered directly to the United States purchasers with title passing at the time of delivery. Aljean, Inc. never acts as the importer of record, but does perform duties associated with an agency relationship. In this case, transaction value was based on the sale between the importer and the United States purchaser.

Finally, the protestant asserts that the import specialist used the Canadian price list when appraising the merchandise rather than using the United States price list.

No legal authority exists to appraise imported merchandise on the basis of price lists. If, however, the import specialist confirms that the merchandise was sold at a particular price as was claimed by the importer, only later to inadvertently assign a different price to the merchandise, then the merchandise was in fact, appraised inappropriately and your office should make the necessary adjustments.

HOLDING:

The facts of this case support the conclusions drawn in IA 70/85. The transaction which caused the merchandise to be exported to the United States was the sale between the importer and the United States purchasers. The amounts retained by Aljean, Inc. for it's marketing services are dutiable as selling commissions. Where the merchandise was exported to a warehouse in the United States without any U.S. purchasers prior to that exportation, the transaction value will be the "price actually paid or payable" between the importer and the manufacturer, assuming that their relationship did not influence the price.

Accordingly, you are directed to deny this protest to the extent necessitated by this decision. If an inappropriate price was used to appraise the merchandise, then the proper price needs to be used. 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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