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HQ 544878

June 1, 1994

VAL CO:R:C:V 544878 CRS

CATEGORY: VALUATION

District Director
U.S. Customs Service
P.O. Box 3130
Laredo, TX 78044-3130

RE: Application for Further Review of Protest No. 2304-90-000228

Dear Madam:

This is in reply to your memorandum of December 3, 1991, forwarding an application for further review of the above referenced protest, filed by counsel Webster & Sheffield, subsequently replaced by Baker & Hostetler, on behalf of Climatex, Inc. (the "protestant"). We regret the delay in responding.

FACTS:

Protestant imported the subject merchandise (copper tubing) from a related party "seller" in Mexico. The merchandise was "purchased" through a debt-equity swap (the "swap") agreement with the Mexican government. Under this agreement, the protestant purchased, at less than face value, Mexican sovereign debt held by creditor banks. The debt was exchanged with the Mexican Treasury for pesos, which were deposited in the account of the related party. The related party used these funds to purchase copper from a Mexican manufacturer, which used the copper to manufacture the imported merchandise. The swap price apparently represented the full "purchase" price of the imported merchandise. The invoice accompanying the merchandise showed both the intercompany transfer price, and the swap price, in U.S. dollars. However, it should be noted that through the swap mechanism, the protestant received a more favorable exchange rate than it otherwise would have. Counsel states that had protestant engaged in a straightforward currency exchange, it would have received forty-seven percent fewer pesos than it did through the swap. Counsel for protestant nevertheless maintains that the imported merchandise should be appraised under transaction value (section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979; 19 U.S.C. 1401a) based on the cost of a debt-equity swap (the "swap") with the Mexican government pursuant to which the merchandise was acquired.

However, you contend that the cost of the swap is not an appropriate basis on which to determine transaction value. Furthermore, in a letter dated May 4, 1994, counsel for protestant requested that the protest be withdrawn.

ISSUE:

The issue presented is whether payments in respect of a debt- equity swap constitute the price actually paid or payable of the imported merchandise.

LAW AND ANALYSIS:

Section 174.28, Customs Regulations, provides that '[i]n determining whether to allow or deny a protest filed within the time allowed a reviewing officer may consider . . . additional grounds or arguments submitted in writing by the protesting party . . . ." 19 C.F.R. 174.28. In a letter dated May 4, 1994, the protestant requested that the protest and application for further review be withdrawn. However, the Customs Regulations do not provide for the withdrawal of protests. Accordingly, pursuant to protestant's request of May 4, 1994, the protest should be denied. We also note that in a companion case (HRL 545549), an offer in compromise submitted by protestant was accepted. The offer in compromise resulted in a full and complete settlement of all civil claims and charges related to valuation issues.

HOLDING:

Pursuant to the foregoing, the protest should be denied in full. A copy of this decision should be attached to the Form 19 Notice of Action.

In accordance with section 3A(11)(b), Customs Directive 099 3550-065, dated August 4, 1993, this decision should be mailed by your office to the protestant no later than sixty days from the date of this letter. Sixty days from the date of this decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS, and to the public via the Diskette Subscription Service, Lexis~, the Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director

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