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HQ 544620


December 23, 1991

VAL CO:R:C:V 544620 ML

CATEGORY: VALUATION

Area Director, JFK
New York, New York

RE: Deductions From the Appraised Value for Freight Costs; Application for Further Review of Protest No. XXXX

Dear Sir:

The protest was filed against your appraisement decision in the liquidation of various entries made by Happy Kids Ltd. The wearing apparel was manufactured in China. The protestant takes issue with the method of determining transaction value on 46 importations. The merchandise was appraised pursuant to transaction value, section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C.

FACTS:

Happy Kids Ltd., (hereinafter referred to as the "importer"), imported infants and girls cotton coveralls manufactured in China and subject to quota. The merchandise was purchased C&F New York, to be shipped by ocean vessel. Counsel for the importer states that when it became apparent that the quota from China would close, the importer and manufacturer agreed to ship the merchandise by air. Pre-paid airway bills by the manufacturer were submitted in support of this claim. In consideration for the manufacturer's agreement to ship the merchandise by air, the original purchase price was increased. The merchandise was entered in late March and April 1987, at the final invoice price paid to the manufacturer, plus the cost of assists, with a deduction for estimated costs for shipping the merchandise by ocean freight. Several of the air freight bills submitted exceed the C&F invoice value.

Your position is that the freight forwarder's pre-paid airway bills are not correct and should not be used as a basis for freight deductions. You ask us to note, that when you obtained freight bills from Japan Air Lines (JAL), the airline which flew the merchandise from Hong Kong to New York, the freight charges for air shipments numbered 4, 15, 16, 17, 18, & 25 were less than those charges which were shown on the freight forwarder's airway bill for the same international freight. Officials for JAL stated that the face amount shown as prepaid on their airway bills were not the amount actually received by the airline. Blank airway bills were given to the freight forwarder who fills in all the information. The freight forwarder then paid the airline the face amount on it's bill and then the airline rebates a percentage back to the freight forwarder. You ask us to note, that the freight forwarders' submitted affidavits stating that the amounts represented on the airway bills were correct and that no rebates were given.

You conclude, that although an itemized charge for international freight was included in the invoice price, the commercial reality was that the prices for the shipments resembled F.O.B. terms rather than C&F because it appeared that the cost of international air freight was not included in the renegotiated invoice price. Therefore, since air freight was not included in the invoice price, it did not form part of the "price actually paid or payable" as there was no payment by the importer to the seller for the air freight. The only freight charge paid by the importer, in your opinion, was the itemized freight charge shown on the commercial invoice, and that charge was deducted from the invoice at the time of entry. Consequently, you would allow no additional deduction for air freight.

In contrast, the importer is of the opinion that the amount shown on the freight forwarder's airway bill as prepaid should be deducted as freight costs. In support of this position, the importer points to section 402(b)(4)(A) of the TAA, quoted above, and Headquarters Ruling Letter (HRL) 542467, dated August 13, 1981. In HRL 542467, we stated that it was the actual transportation costs that we were seeking, rather than the amount shown on the SCI, if that was not the true cost. Counsel for the importer concluded, therefore, that actual international freight charges, as reflected in the freight forwarder's bill, must be deducted.

ISSUE:

Whether the transaction value of the imported merchandise can be determined, and if so, was it the value of the invoice prices, less the cost of freight as shown on a freight forwarder's prepaid airway bill, plus the cost of assists.

LAW AND ANALYSIS:

The method of appraisement used in connection with these entries, transaction value, is defined in section 402(b) of the TAA as the "price actually paid or payable for the merchandise when sold for exportation to the United States," plus certain enumerated additions. In the instant case, there is no dispute that assists, as that term is defined in section 402(h) of the TAA, were provided to the manufacturer and therefore, are added to the "price actually paid or payable". 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 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. (emphasis added)

While we may be concerned about the procedures used in the issuance of freight bills, we do not believe the resolution of this issue is controlling with respect to the instant case. Freight costs pertaining to the international movement of merchandise from the country of exportation are, to the extent included in the price actually paid or payable, to be excluded from the total payment made for imported merchandise appraised under transaction value. Here, proper documentation establishing the actual freight costs to be excluded was submitted to Customs.

Section 402(b)(2)(A) of the TAA limits the acceptability of transaction value in a number of instances. This section provides, in relevant part:

"The transaction value of imported merchandise determined under paragraph (1) shall be the appraised value of that merchandise for the purposes of this act only if...(ii) the sale of, or the price actually paid or payable for, the imported merchandise is not subject to a condition or consideration for which a value cannot be determined with respect to the imported merchandise." (emphasis added)

In the instant case, the importer stated that the merchandise was originally purchased for a C&F price, to be shipped by ocean vessel, yet the price was renegotiated prior to exportation resulting in a higher C&F price, to be shipped by air. As it turns out, the "renegotiated price" does not represent a value for the goods and a value for the supposedly included air freight costs.

Section 402(b)(4)(A) of the TAA, in allowing for a deduction from the total payment for the actual expenses incurred for transportation, insurance and other services incident to the international shipment of the merchandise, attempts to arrive at essentially an FOB or ex-factory price for the goods subject to appraisement. In a C&F delivered price for imported merchandise, the allowance for international freight costs represents the adjustment necessary to calculate the price actually paid or payable for the imported merchandise.

In these situations in which an amount reflecting actual air freight has not been included in the price actually paid or payable, to make an adjustment for air freight would frustrate the intent of Congress and lead to absurd results. Consequently, we are of the opinion that the imported merchandise is subject to a condition or consideration for which a value cannot be determined, as defined in section 402(b)(2)(A)(ii) of the TAA. Therefore, transaction value cannot be used.

Since transaction value is inappropriate for use in connection with the imported merchandise, the next statutorily obtainable method of appraisement must be considered.

HOLDING:

In light of the foregoing, transaction value is inappropriate because the renegotiated C&F price, to be shipped by air subjected the merchandise to a "condition... for which a value cannot be determined with respect to the imported merchandise," within the meaning of section 402(b)(2)(A)(ii) of the TAA.

The merchandise should be appraised using the next statutorily obtainable method of appraisement.

Accordingly, you are directed to deny the protest in a manner consistent with the instructions set forth above. In the event that you are unable to obtain the information necessary to appraise the merchandise in a manner consistent with the above, you may have no alternative but to deny the protest in full. A copy of this decision should be attached to Customs Form 19 and mailed to the protestant as part of the notice of action on the protest.

Sincerely,

John Durant, Director

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