HQ 0544513 - Request for Internal Advice on Sale for Exportation Involving the Importation of Mexican Cement; IA 28/90 - United States International Trade Commision Rulings

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HQ 544513
September 9, 1990

VAL CO:R:C:V 544513 VLB

CATEGORY: VALUATION

District Director
U.S. Customs Service
880 Front Street
Room 5-S-9
San Diego, California 92188

RE: Request for Internal Advice on Sale for Exportation Involving the Importation of Mexican Cement; IA 28/90

Dear Sir:

This is in response to a Request for Internal Advice (IA internal advice involves the appraisement of cement produced in Mexico by parties related to S--------.

FACTS:

S--------, through counsel, states that it is a corporation organized under the laws of Texas. S-------- is an indirect corporation (hereinafter referred to as "C----"). C---- owns or controls several cement mills in Mexico, including the mills that produce the imported cement.

S-------- further explains that all cement exported from (hereinafter referred to as "CI--") from the mills. CI-- is a Mexican export trading company. CI-- sells all cement destined provides for CI-- to sell to Trading for delivery at the U.S. - Mexican border, cement required by T------ to fulfill its customer orders. The terms of the sale are C&F-mill or C&F- terminal terms. Thus, according to counsel title passes to T------ when the merchandise is delivered to the export carrier at the mill or at the terminal.
although counsel states that T------ carries on no activities in the U.S., and has no physical presence in the U.S. S-------- is
the importer of record and clears the merchandise through Customs. Counsel states that "title to cement sold to S-------- by T------ passes to S-------- instantaneously after its acquisition by T------ at the Mexico - U.S. border". The terms

Finally, counsel explains that CI-- and S-------- each operate terminal facilities. However, T------ does not have terminal facilities. From the time the cement is loaded on board the truck or the rail carrier that will carry it to the U.S., counsel states that the cement is segregated from other merchandise and is destined for exportation to the U.S. without contingency of diversion. This usually takes place at the mill, unless the mill is not equipped with rail-car sidings. In those situations, the cement is trucked from the mill to a rail terminal operated by CI-- and reloaded on a rail car.

Counsel contends that under this set of facts, the appraised value of the imported merchandise should be based on the sale between CI-- and T------, less included foreign inland freight, terminal and brokerage charges.

ISSUES:

(1) Whether the transaction between CI-- and T------ or the transaction between T------ and S-------- established the price actually paid or payable for the merchandise when it was sold for exportation to the U.S.

(2) Whether the foreign inland freight can be deducted from the price actually paid or payable to arrive at the appraised value of the merchandise.

LAW AND ANALYSIS:

As you know, transaction value, the preferred method of appraisement, is defined in 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) as the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus enumerated additions.

The "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as "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. . .) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller.

Counsel contends that transaction value is the proper method of appraisement for the imported cement. Moreover, as previously mentioned, counsel takes the position that the only sale that qualifies as a sale for export to the U.S. is the sale between CI-- and T------. Counsel states that this sale "is without question a sale for exportation to the United States since it is the transaction in which the goods are delivered to and title passes to the importer, and the means by which the importer, if it wished, would become entitled to take physical delivery of the cement undergoing importation".

Further, counsel takes the position that the sale from T------ to S-------- is not a sale for exportation to the U.S., it is a sale which takes place within the U.S. S-------- cites Headquarters Ruling Letter 543789, dated February 17, 1987, to support its contentions. In HRL 543789, the importer was a Canadian corporation that purchased merchandise in several foreign countries for resale to customers in the U.S. The merchandise was delivered directly to a public warehouse facility in the U.S. where it was prepared for subsequent delivery to the ultimate purchasers that the importer usually contracted with prior to the importation of the goods. The merchandise was sometimes held in inventory.

In HRL 543789, the importer retained total control of all aspects of the transaction with regard to the merchandise, including bearing the risk of loss from the time of importation into the U.S. until delivery to the ultimate purchaser. The importer was responsible for the payment of ocean freight, insurance charges, and inland transportation subsequent to importation.

Customs held that the sale for exportation to the U.S. for the basis of transaction value was the sale between the foreign manufacturer and the importer. The subsequent sales between the importer and the ultimate U.S. purchasers were domestic sales and thus, could not serve as the "price actually paid or payable" for the merchandise when sold for exportation to the U.S.

The import specialist and national import specialists' (NIS) views on this issue are that the sale between CI-- and T------ is an in-transit sale. Further, transaction value cannot be based on an in-transit sale. Therefore, the NIS reaches the conclusion that the CI--/T------ sale cannot be the basis for transaction value.

Alternatively, in the NIS's opinion, S-------- is the firm that was intended as the ultimate importer from the first step in the series of transactions. The NIS considers CI-- to be the foreign seller, and Trading is CI--'s selling agent. Thus, the price that S-------- pays to T------ includes a selling commission. The price between S-------- and T------ can be used as a starting point for transaction value under these circumstances.

We agree with the NIS's assessment that T------ is operating as CI--'s selling agent. A selling agent is a person who acts for the account of the seller. The selling agents generally seek customers, collects orders, and in some cases the agent may arrange for storage and delivery of the goods.

In this case, the arrangements provide for CI-- to "sell" cement to T------ for delivery at the U.S. - Mexico border; and T------ is to "sell" cement to S-------- for delivery at the U.S. border. As the importer states "[t]itle to cement sold to S----- acquisition by ------- at the Mexico - U.S. border.

Thus, in reality the sale of the cement occurs between C--- and S--------. T------ acts as an intermediary on behalf of CI-- for all cement that is destined for the U.S. The fact that T------ may take title to the merchandise for a split second does not negate a finding that T------ is acting on behalf of CI--. The importer itself states that in the transaction between CI-- and T------ "the goods are delivered to and title passes to the importer, and the means by which the importer, if it wished would become entitled to take physical delivery of the cement undergoing importation". See, page 5 of March 13, 1990 submission. Clearly, T------ cannot sell the cement to a U.S. customer of T------'s choice.

Moreover, the CI-- invoices that are included in the file, list S------ as the purchaser of the merchandise. Any amount that T------ retains from the sum that S------ remits, over the "price" that CI-- charged T------, is a selling commission. Under section 402(b)(1)(B) of the TAA any selling commission incurred by the buyer (Sunbelt) with respect to the imported merchandise is added to the price actually paid or payable to arrive at the transaction value of the goods.

Finally, we disagree with counsel's contention that HRL 543789 is applicable in this case. In HRL 543789, the Canadian importer had the risk of loss from the time of importation into the U.S. until delivery to the ultimate U.S. purchaser.

That is not the case in the present situation. Although counsel calls T------ the importer, it is actually S-------- that is the importer of record and the party that has title when the goods are entered into the U.S. There is no domestic sale between

As stated previously, all of the parties in this transaction are related as the term is defined in section 402(g) of the TAA. Therefore, the proposed transaction value must meet either the "circumstances of the sale" test or the test value method for determining the acceptability of a price in a related party transaction. This determination is made on a case-by-case basis by the Customs import specialist reviewing the entries. The import specialist can request further proof that the proposed transaction values are acceptable under one of the statutory tests.

For purposes of addressing the freight issue, we are assuming that transaction value will be the proper method of appraisement.

Counsel contends that the transaction value of the merchandise should not include all freight, terminal, export clearance and brokerage charges from the mill to the point of delivery, the U.S. - Mexican border. Counsel's argument is that these charges are incidental to the international movement of the goods.

As previously stated, the price actually paid or payable for the imported merchandise is the total price paid to the seller, 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. In this case, S-------- is purchasing F.O.B. Midbridge.

In T.D. 84-235 (49 FR 46886), Customs amended 19 CFR 152.103(a)(5) covering the dutiability of foreign inland freight and other services incident to the international shipment of merchandise. The applicable provision of the amended regulation, 19 CFR 152.103(a)(5)(ii) contains the following language:

Sales other than ex-factory. As a general rule, in those situations where the price actually paid or payable for imported merchandise includes a charge for foreign inland freight, whether or not itemized separately on the invoices or other commercial documents, that charge will be part of the transaction
value to the extent included in the price. However, charges for foreign inland freight and other services incident to the shipment of the merchandise to the United States may be considered incident to the international shipment of that merchandise within the meaning of section 152.102(f) if they are identified separately and they occur after the merchandise has been sold for export to the United States and placed with a carrier for through shipment to the United States.

Subsection (iii) of the regulation requires that a through bill of lading be presented to the District Director to meet the requirement in (ii) that a sale for export and placement for through shipment have occurred. Only in those situations where it is impossible to ship merchandise on a through bill of lading will other documentation be accepted in lieu of a through bill of lading.

In the present case, counsel states that a through bill of lading is issued either at the rail terminal or at the mill when the mill is equipped with rail loading facilities. This document covers shipment to a rail terminal in San Diego.

In those cases where the mill is equipped with rail loading facilities and the merchandise is placed in a car at the mill, and arrives in the same car in the U.S., the requirements of T.D. 84-235 may be met. However, the import specialist must make the final determination on this issue upon review of the documentation.

In those situations where the mill is not equipped with rail loading facilities and the merchandise must be transported to a rail terminal, the requirements of 19 CFR 152.103(a) may be harder to meet because two carriers are involved. Here again, the Import Specialist must make the determination on the dutiability of the freight and related charges after review of the documentation.

Finally, counsel states that the merchandise may sometimes be shipped by truck from the mill to the U.S. destination. In this case if the shipment is in the hands of a single carrier that can provide the proper documentation, then the foreign inland freight and related charges may be excluded from the transaction value of the merchandise under 19 CFR 152.103(a).

HOLDINGS:

(1) The sale for exportation for purposes of transaction value occurs between CI-- and S-------- with T------ acting as a over and above what T------ remits to CI-- will be considered to be a selling commission.

(2) The requirements for the exclusion of foreign inland freight charges and related fees are set out in 19 CFR 152.103(a)(5). The Import Specialist must determine whether the requirements of the regulation have been met after review of the documentation.

Sincerely,

John Durant, Director,
Commercial Rulings Division

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