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HQ 544881


March 8, 1993
VAL CO:R:C:V 544881 ILK

CATEGORY: VALUATION

District Director
Nogales, Arizona

RE: Application for Further Review of Protest No. 2904-8- 000120; dutiability of foreign inland freight and brokerage fees

Dear Sir:

The subject protest and application for further review concerns the dutiability of foreign inland freight and brokerage fees incidental to international shipment in certain transactions between xxxxxxxx (hereinafter referred to as the "importer") and xxxxxxxxxxx S.A. de C.V. (hereinafter referred to as the "manufacturer").

FACTS:

Protest is made against the liquidation of entries of multiple outlet strips at the invoice price. Documents submitted in support of the protest include representative entry summaries and their corresponding invoices. The merchandise is imported from Nogales, Sonora, Mexico into the United States. Each invoice lists the merchandise and quantity, the "unit costs" and the "total costs," which are separated into "dutiable" and "non dutiable" columns. For example in one entry the invoice shows that for 50 multiple outlet strips the non dutiable unit cost is $x.xxxx, the nondutiable total cost is $xxx.xx, the dutiable unit cost is $x.xxxx, and the dutiable total cost is $xxx.xx. The invoice also states the unit cost and total cost for packing materials. At the bottom of each column of figures is a total for dutiable and non dutiable unit costs and total costs, and packing materials unit and total costs, the total of which is identified as the "total value of shipment." At the bottom of each invoice is a space marked "total freight" filled in with the handwritten amount of $50.00.

The importer's position is that foreign inland freight charges and related brokerage fees are included in the invoice "total value of shipment" amount, are nondutiable, and should be deducted from the invoice amount to determine the transaction value of the merchandise.

ISSUE:

Whether separately itemized foreign inland freight charges and related brokerage fees are non dutiable based on the facts presented.

LAW AND ANALYSIS:

As provided in 152.101, Customs Regulations (19 CFR 152.101) the preferred method of appraisement is transaction value. Transaction value is defined as the "price actually paid or payable" for merchandise when sold for exportation to the United States. This is more specifically defined in 402 (b)(4)(A) of the Trade Agreements Act of 1979, (19 U.S.C. 1401a

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. (Emphasis added.)

The expenses related to foreign inland freight charges are not covered by the foregoing provision. However 152.103(a)(5), Customs Regulations (19 CFR 152.103(a)(5)) addresses foreign inland freight and the terms under which it "may be considered incident to the international shipment" of merchandise, and will be discussed below.

The importer is of the opinion that the foreign inland freight charges and related brokerage fees are identified separately and should not be added to the price of the merchandise pursuant to 152.103 (a)(5)(i), Customs Regulations (19 CFR 152.103 (a)(5)(i)). Section 152.103 (a)(5)(i) is applicable only to ex-factory sales as follows:

(5) Foreign inland freight and other inland charges incident to the international shipment of merchandise.
-(i) Ex-factory sales. If the price actually paid or payable by the buyer to the seller for the imported merchandise does not include a charge for foreign inland freight and other charges for services incident to the international shipment of merchandise (an ex- factory price), those charges will not be added to the price.

In this case, the invoices to the importer clearly include the amounts the importer wants excluded from the price of the merchandise, although they are separately listed and identified. Customs has previously ruled that if the buyer's total payment to the seller includes charges for foreign inland freight, then these charges form part of the price actually paid or payable. See Headquarters Ruling Letter (HRL) No. 542101 dated March 4, 1980 (TAA No. 1); HRL No. 542231 dated March 26, 1981; HRL No. 542546 dated August 14, 1981. Thus, the price actually paid or payable includes those amounts identified as "nondutiable" and subparagraph (a)(5)(i) is not applicable.

The facts and the documentation presented do not identify the means of transportation or shipment of the merchandise, nor is a through bill of lading included. Assuming that the costs itemized as "non dutiable" actually involve inland freight charges and related brokerage fees, 152.103 (a)(5), Customs Regulations (19 CFR 152.103 (a)(5)) set forth those instances in which foreign inland freight "may be considered incident to the international shipment" of merchandise:

...(ii) 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 international shipment of the merchandise to the United States may be considered incident to the international shipment of that merchandise within the meaning of 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.
iii) Evidence of sale for export and placement for through shipment. A sale for export and placement for through shipment to the United States under paragraph (a)(5)(ii) of this section shall be established by means of a through bill of lading to be presented to the district director. Only in those situations where it clearly would be impossible to ship merchandise on a through bill of lading (e.g., shipments via the seller's own conveyance) will other documentation satisfactory to the district director showing a sale for export to the United States and placement for through shipment to the United States be accepted in lieu of a through bill of lading. (emphasis added)

The documentary requirements set forth in the foregoing paragraph (iii) were explained in T.D. 84-235 as follows:

To avoid any confusion, it has been determined that in order for foreign inland freight to be deemed incident to the international shipment of merchandise, instead of requiring that freight costs occur subsequent to the placing of imported merchandise on the exporting carrier, the freight costs and other services incident to the shipment of the merchandise must occur after the goods have been sold for export to the United States and are placed with a carrier for through shipment to the United States. This will cover shipments by more than one mode of transportation, by multiple freight companies, or through reload centers, as long as the merchandise has been sold for export to the United States, as evidenced by the presentation to Customs of a through bill of lading. The through bill of lading is necessary to permit Customs officers to verify objectively that the above conditions have been satisfied.

The issue of foreign inland freight has been previously considered by Customs. In HRL No. 543744 dated July 30, 1986, in reference to T.D. 84-235, we pointed out:

The intent of the T.D. in question was to permit foreign inland freight to be nondutiable where such charges are identified separately, and they occur after merchandise has been sold for export to the United States. To ensure that the above criteria have been met Customs mandated in the T.D. that a "through bill of lading" for the purpose of the T.D. was defined in field instructions dated February 6, 1985, as "a contract, waybill, invoice, issued by one carrier or forwarder which controls the manner of shipment from the point or place of manufacture or origin to the U.S. port of importation or beyond (although the shipment may extend over two or more lines of connecting carriers), show the origin and destination of the shipment, consignor and consignee, route of movement and applicable rate or rates." (emphasis supplied)

Similarly, in HRL 543801, dated January 8, 1987, and HRL 543534, dated June 3, 1985, it was stated that the evidence required to establish a sale for export and placement for through shipment is a through bill of lading presented to the district director. Most recently the United States Court of Appeals for the Federal Circuit has upheld Customs' requirement of a through bill of lading, holding that 19 CFR 152.103(a)(5) "only permits exclusion from transaction value of foreign inland freight charges if (a) the merchandise is shipped on a through bill of lading or (b) absent such a bill of lading, a single carrier or forwarder has sole control of the shipment from the foreign factory to the United States border." All Channel Products v. United States, Slip op. 92-1299, at p.2, December 29, 1992. The Court affirmed the Court of international Trade:

Because it was undisputed that All Channel's imported merchandise was neither subject to a through bill of lading, nor under the control of a single carrier or forwarder, the Court of International Trade granted Customs' Motion for Summary Judgment sustaining Customs' appraisement and dismissing the action.

Id.

In view of the foregoing regulatory and interpretative language, the documentation submitted without a through bill of lading, is not sufficient evidence that the foreign inland freight charges and related brokerage fees occurred after the merchandise was sold for export to the United States and placed with a carrier for through shipment to the United States, for the purpose of satisfying the criteria set forth in 152.103 (a)(5)(ii), Customs Regulations.

HOLDING:

Although separately itemized, foreign inland freight charges and related brokerage fees are part of the transaction value of the merchandise, unless an appropriate through bill of lading is presented to Customs pursuant to 152.103(a)(5)(ii), Customs Regulations.

Consistent with the decision set forth above, you are hereby directed to deny the subject protest. A copy of this decision should be attached to the Customs Form 19 mailed to the protestant as part of the notice of action on the protest.

Sincerely,

John Durant, Director
Commercial Rulings Division

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