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HQ 544875


March 2, 1992

VAL CO:R:C:V 544875 GG

CATEGORY: VALUATION

District Director
U.S. Customs Service
One Virginia Avenue
Wilmington, North Carolina 28401

RE: Application for Further Review of Protest No. 1512-91100054; dutiability of foreign inland freight charges

Dear Sir:

This is in response to the protest referenced above, which was sent to this office for further review.

FACTS:

The protestant, xxxx xxxxxx xxxx., imported Christmas ornaments and foil paper articles on November 9, 1990. The commercial invoice listed the price under two sales terms: ex- factory and F.O.B. The ex-factory price and F.O.B. price of each individual article were given, as well as ex-factory and F.O.B. totals. The F.O.B. price was the ex-factory price plus charges for a buying commission and shipping. The terms of sale, as listed on the invoice, were "F.O.B. Japan".

The merchandise was appraised under transaction value, at the F.O.B. invoice price less the buying commission. The entry was liquidated on March 29, 1991; the protestant timely protested the liquidation, arguing that the merchandise was sold at an ex- factory price and therefore the foreign inland freight charges should have been deducted. To support its position, the protestant indicates that the commercial invoice shows an ex- factory price and separately identifies shipping charges, which, it contends, are foreign inland freight charges. Also, the protestant states that the bill of lading reflects through shipment with lading in Tokyo and discharge in Savannah. However, the protestant appears to be in error on this last point as the bill of lading and the entry summary indicate that the merchandise was laden in Kobe.

ISSUE:

Whether the foreign inland freight charges should have been excluded from the transaction value of the imported merchandise?

LAW AND ANALYSIS:

The primary basis of appraisement under the valuation statute, section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), is transaction value. This is defined in section 402(b) of the TAA as "the price actually paid or payable for the imported merchandise when sold for exportation to the United States," plus amounts for packing costs which are incurred by the buyer, any selling commission, the value of any assist, any royalty or license fee the buyer is required to pay as a condition of the sale, and the proceeds of any subsequent resale that accrue to the seller.

The price actually paid or payable is defined in section 402(b)(4)(A) of the TAA as the "total payment, . . . made, or to be made, for the merchandise by the buyer to . . . the seller." The price actually paid or payable does not include 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. Deductions may be made for costs incurred for transportation of the merchandise after importation, if such costs are identified separately from the price actually paid or payable.

Foreign inland freight charges are considered to be incident to the international shipment of merchandise, and are not added to the price actually paid or payable by the buyer to the seller for imported merchandise, when the sale was based on an ex- factory price. Section 152.103 (a)(5)(i) of the Customs Regulations (19 CFR 152.103 (a)(5)(i)). An ex-factory price is the cost of the goods at the seller's loading dock and usually includes export packing, but no other costs. It does not include foreign inland freight costs. See Incoterms, 1980 edition; and 19 CFR 152.103 (a)(5)(i). The existence of an ex-factory sale must be established for the importer to be able to exclude, under this provision, foreign inland freight charges from the price actually paid or payable.

The protestant argues that the commercial invoice from the seller provides clear evidence that the imported merchandise was sold on an ex-factory basis, because it lists an ex-factory price and a separate shipping charge. However, the bottom-line total on the invoice, and the terms of sale, are "F.O.B. Japan". This throws the validity of the alleged ex-factory sale into question.

In situations where an ex-factory price is asserted, but where foreign inland freight charges are included in the same invoice as the price, Customs requires a written explanation from the importer stating that the foreign inland freight charges were charged separately as part of an accomodation agreement between the buyer and seller. See HRL 543744, dated July 30, 1986; and Customs Telex UNCLAS 6689, dated July 17, 1985. This information is necessary to overcome the presumption - raised by the existence of the foreign inland freight charges on the invoice - that the sale was on other than ex-factory terms. The protestant has not provided such an explanation. Consequently, an ex- factory sale has not been conclusively established. Customs correctly appraised the merchandise using the F.O.B. Japan price.

A sale on F.O.B. terms means that the price includes all costs of bringing the merchandise alongside, and lading it on board, the exporting carrier. See Incoterms, 1980 edition. Foreign inland freight charges will be one of those costs, in instances where foreign inland freight charges are incurred. By regulation, when the price actually paid or payable for imported merchandise includes a charge for foreign inland freight, as it does here in this F.O.B. sale, then that charge will be part of the transaction value to the extent it is included in the price. It is immaterial that the freight charges were itemized separately on the invoice. Section 152.103 (5)(ii) of the Customs Regulations (19 CFR 152.103 (5)(ii)). However, charges for foreign inland freight may be considered incident to the international shipment of that merchandise, and thus excludable, 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. Id. A sale for export and placement for through shipment to the United States is established by means of a through bill of lading. Section 152.103 (5)(iii) of the Customs Regulations (19 CFR 152.103 (5)(iii)). The bill of lading presented by the protestant reflects shipment of the merchandise from Kobe to Savannah; it does not show through shipment from Osaka, where the factory apparently is located, to Savannah. The protest is denied because there is no evidence of through shipment from the manufacturing site to the United States.

HOLDING:

The "shipping charges" identified by the protestant as foreign inland freight charges were properly included in the transaction value of the imported merchandise, because the sale for exportation was based on a F.O.B., not an ex-factory, price, and no through bill of lading was furnished by the importer.

You are directed to DENY this protest in full. A copy of this decision should be attached to the CF 19, Notice of Action, and sent to the protestant to satisfy the notice requirement of section 174.30(a) of the Customs Regulations.

Sincerely,

John Durant
Director, Commercial

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