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Customs Valuation Update III

This publication updates the Customs Valuation Encyclopedia and includes U.S. Customs Headquarters rulings issued by the Office of Regulations and Rulings from January, 1993 through December, 1993, and relevant court cases decided between January, 1993 and December, 1993.
 TABLE OF CONTENTS

Assists . . . . . . . . . . . . . . . . . . . . . . . . . 1 Chrysler Corp. vs. U.S. . . . . . . . . . . . . . . . . 1 apportionment of assists . . . . . . . . . . . . . . . 1 consumed in the production of imported merchandise . . 2 costs incurred in procuring assists . . . . . . . . . . 2 materials, components . . . incorporated in the imported merchandise . . . . . . . . . . . . . . . . 2 payment to seller . . . . . . . . . . . . . . . . . . . 3 supplied by the buyer . . . . . . . . . . . . . . . . . 3 value of assist . . . . . . . . . . . . . . . . . . . . 3

Buying Commissions . . . . . . . . . . . . . . . . . . . 5 bona fide buying commissions . . . . . . . . . . . . . 5 commissions paid to agent for procuring assists . . . . 5 dutiable as part of price actually paid or payable . . 5

Computed Value . . . . . . . . . . . . . . . . . . . . . 7 usual profit and general expenses . . . . . . . . . . . 7

Countertrade . . . . . . . . . . . . . . . . . . . . . . 8 price actually paid or payable . . . . . . . . . . . . 8

Defective Merchandise . . . . . . . . . . . . . . . . . . 9 price allowance . . . . . . . . . . . . . . . . . . . . 9

Foreign Trade Zones . . . . . . . . . . . . . . . . . . 10 zone value . . . . . . . . . . . . . . . . . . . . . 10

Formulas in Determining the Price Actually Paid or Payable . . . . . . . . . . . . . . . . . . . 11 provisional price . . . . . . . . . . . . . . . . . 11

Interest . . . . . . . . . . . . . . . . . . . . . . . 12 financing arrangement . . . . . . . . . . . . . . . . 12 separately identified from price . . . . . . . . . . 12

Invoicing Requirements . . . . . . . . . . . . . . . . 13 inconsistent documents presented at time of entry, T.D. 86-56 . . . . . . . . . . . . . 13

Lease Transactions . . . . . . . . . . . . . . . . . . 15 reasonably adjusted transaction value . . . . . . . . 15

Price Actually Paid or Payable . . . . . . . . . . . . 16 Chrysler Corp. vs. U.S. . . . . . . . . . . . . . . . 16 additional payments made by buyer to seller . . . . . 16 insufficient information to determine the price actually paid or payable . . . . . . . . 17 price renegotiation . . . . . . . . . . . . . . . . . 17 warranty payment . . . . . . . . . . . . . . . . . . 18

Prohibited Appraised Values . . . . . . . . . . . . . . 19 arbitrary or fictitious values . . . . . . . . . . . . 19

Quota Payments . . . . . . . . . . . . . . . . . . . . . 20 Murjani Int'l. vs. U.S. . . . . . . . . . . . . . . . 20 payments to unrelated third parties . . . . . . . . . 20

Rebates Subsequent to Importation . . . . . . . . . . . 21 Esprit de Corp vs. U.S. . . . . . . . . . . . . . . . 21 post-importation payments . . . . . . . . . . . . . . 21

Related Party Transactions . . . . . . . . . . . . . . 22 sales to unrelated buyers . . . . . . . . . . . . . . 22

Royalty Payments and License Fees . . . . . . . . . . . 23 dutiability of payments . . . . . . . . . . . . . . . 23

Sale . . . . . . . . . . . . . . . . . . . . . . . . . . 24 bona fide sale . . . . . . . . . . . . . . . . . . . . 24

Sale for Exportation . . . . . . . . . . . . . . . . . . 25 Synergy Sport Int'l. vs. U.S. . . . . . . . . . . . . 25 irrevocably destined for the U.S. . . . . . . . . . . 25 transaction value determination . . . . . . . . . . . 25

Transaction Value . . . . . . . . . . . . . . . . . . . 27 provisional price . . . . . . . . . . . . . . . . . . 27 selling commissions . . . . . . . . . . . . . . . . . 27 unrelated parties . . . . . . . . . . . . . . . . . . 27 value of assist . . . . . . . . . . . . . . . . . . . 28

Transportation Costs . . . . . . . . . . . . . . . . . . 29 foreign inland freight . . . . . . . . . . . . . . . . 29 international freight deduction . . . . . . . . . . . 29

Value If Other Values Cannot Be Determined . . . . . . . 30 reasonably adjusted transaction value . . . . . . . . 30

Verification . . . . . . . . . . . . . . . . . . . . . . 31 19 U.S.C. 1500 . . . . . . . . . . . . . . . . . . . . 31 insufficient evidence . . . . . . . . . . . . . . . . 31

Table of Citations . . . . . . . . . . . . . . . . . . . 32- 1 -

ASSISTS

Judicial Precedent:

Chrysler Corporation vs. United States, Slip Op. 93-186 (Ct. Int'l. Trade September 22, 1993).

The importer purchased engines from a foreign seller. The agreement between the parties required a minimum number to be purchased, otherwise shortfall and application charges were to be paid to the seller. The Court stated that these fees were in the nature of a contractual "penalty", and the financial responsibility was triggered by the failure to purchase engines. The fees were not part of the price actually paid or payable for the engines. In addition, the importer made payments to the seller for tooling expenses and claimed these payments as assists. The Court agreed with Customs that the payments made for tooling expenses are not assists but rather, are part of the price actually paid or payable. The statutory requirements for an assist are not met because the seller is not supplied with the actual tooling. The tooling expense was allocated over the number of engines intended to be produced rather than the actual number of engines imported.

Headquarters Rulings:
apportionment of assists

Tooling was supplied free of charge by the importer to the unrelated manufacturers in China for use in the production of the imported merchandise. Duty on the entire value of the tooling assist was paid. Subsequently, the importer seeks to have the method of apportionment changed, whereby the value of the tooling is apportioned over its useful life. At the time the payment was made, the importer had the option of selecting a different method of apportionment of the assist. Instead, the importer chose another acceptable method. The method of apportionment of the value of the assist can not be amended retroactively after liquidation of the entry.
544494 dated June 28, 1993.

The importer proposes to apportion the value of assists according to a depreciation schedule approved by the IRS for income tax purposes. However, the proposed apportionment method is not reasonable or appropriate to the circumstances and is unacceptable for appraisement purposes. There must be a connection between the apportionment method selected and the imported articles. The proposed apportionment method is unreasonable because it is based solely on the estimated useful life of the assist, and there is no link between the apportionment method and the imported merchandise.
545031 dated June 30, 1993.
consumed in the production of imported merchandise

A cell culture is supplied to the foreign seller by the buyer. The imported merchandise produced from the cell culture consists of monoclonal antibodies. The cell culture is "consumed" in the production of the antibodies and therefore, constitutes an assist. The value of the assist is the cost of producing the assist plus the cost of transporting it to the foreign producer.
545135 dated August 27, 1993.
costs incurred in procuring assists

Through its agent, the importer intends to provide materials and parts, specifically piece goods, to the manufacturers of the apparel it imports. The piece goods constitute assists. The commissions paid by the importer as payment to the agent for services rendered in sourcing piece goods (assists) on behalf of the manufacturers of imported merchandise are considered as part of the cost of acquiring the assists. Therefore, the commissions are added to the price actually paid or payable for the imported merchandise. 544976 dated March 17, 1993.

Commissions paid by a buyer of imported merchandise to an agent for acquiring assists are part of the cost of acquisition of the assist and are to be added to the price actually paid or payable.
545266 dated June 30, 1993.
materials, components, parts, and similar items incorporated in the imported merchandise

The importer supplied buttons to the seller through its buying agent in Taiwan. It was also the agent's responsibility to seek reimbursement from the seller for the buttons and subsequently remit the reimbursement to the importer. The agent failed to recoup and/or remit the monies to the importer for several years. The seller subsequently refused to reimburse the importer for the cost of the buttons, and the importer is presently holding the agent responsible for the unremitted monies. The agent is paying the importer through a series of monthly credits. The buttons, supplied free of charge to the seller, through the buying agent are assists.
544876 dated September 3, 1993.

The importer supplies belts of foreign origin, procured from a third party, free of charge to the manufacturer of trousers. The belts are placed through loops on the trousers sized to accommodate the width of the belt and are imported and sold with the trousers. The belts are incorporated into the
imported merchandise within the meaning of section 402(h)(1)(A)(i) of the TAA. Accordingly, the belts supplied by the buyer to the seller constitute an assist. The value of the assist may be apportioned over the first shipment of a given style.
544874 dated October 22, 1993.
payment to seller

The importer is paying a fee to the seller to cover the cost of research and development for future products. To cover the charge of future research and development, the seller imposes a charge of 4% of the invoice value on current purchases by the importer. The research and development costs become part of the importer's total payment to the seller. The payment is directly tied to the invoice purchase price. The payments made by the importer to the seller are part of the price actually paid or payable for the merchandise currently imported.
544972 dated October 20, 1993.

The importer advances a stated amount to the seller which is held by the manufacturer as security for the cost of a mold to produce imported merchandise. It is agreed between the parties that the mold charges are fully refundable if a certain number of pieces are ordered. The importer's payment, characterized as a refundable mold deposit, is part of the price actually paid or payable. The payment does not meet the statutory definition of an assist and cannot be treated as such. In addition, the refund of the mold deposit from the seller to the importer after importation, shall not be taken into account in determining the transaction value of the merchandise.
544867 dated December 15, 1993.
supplied by the buyer

Although fabric is supplied free of charge to the seller of merchandise, it is not supplied by the buyer or a party related to the buyer. Therefore, the fabric is not an assist. 545172 dated May 6, 1993.
value of assist

The importer provides the foreign manufacturer with an assist. However, the value of the assist is based upon the average net selling price of the imported merchandise and is calculated on a quarterly basis. At the time of importation, the value of the assist is not known. Transaction value is an acceptable basis of appraisement only if, at the discretion of the port
of entry, liquidation can be withheld in order to permit a determination of the cost of acquisition of the assist at a later date. If the port determines that liquidation cannot be withheld, the merchandise must be appraised in accordance with the first applicable method arrived at through a sequential application of the statutorily enumerated methods.
545086 dated April 1, 1993.

BUYING COMMISSIONS

Headquarters Rulings:
bona fide buying commissions

The services provided by the agent in this case are those typically performed by a bona fide buying agent. The commissions paid to the agent are bona fide buying commissions and they do not form part of the price actually paid or payable. The common ownership position of the agent and the trading companies does not alter the fact that the commissions are bona fide buying commissions, provided the parties adhere to the terms of the agency agreement. 545176 dated June 28, 1993; 545177 dated June 28, 1993.

If the actions of the parties conform to the descriptions provided regarding the subject prospective transactions, and the terms of the agency agreement are met to the extent that the importer will exercise the requisite degree of control over the buying agents as specified in the agreements, then the commissions paid to the agent are to be considered bona fide buying commissions.
545036 dated December 14, 1993.
commissions paid to agent for procuring assists

Through its agent, the importer intends to provide materials and parts, specifically piece goods, to the manufacturers of the apparel it imports. The piece goods constitute assists. The commissions paid by the importer as payment to the agent for services rendered in sourcing piece goods (assists) on behalf of the manufacturers of imported merchandise are considered as part of the cost of acquiring the assists. Therefore, the commissions are added to the price actually paid or payable for the imported merchandise. 544976 dated March 17, 1993.

Commissions paid by a buyer of imported merchandise to an agent for acquiring assists are part of the cost of acquisition of the assist and are to be added to the price actually paid or payable.
545266 dated June 30, 1993.
dutiable as part of the price actually paid or payable

Based upon the importer's statement of extensive quality inspections, and the commensurate 15% rate of commission paid to the alleged agent, and the lack of an agency agreement at the time the representative transactions occurred, the totality of the evidence does not indicate that the agent is
in fact a bona fide buying agent. The fees paid to the agent do not constitute bona bide buying commissions and the fees are to be included in the transaction value of the imported merchandise.
545038 dated February 17, 1993.

The information submitted is insufficient to support the existence of a bona fide agency relationship. There is no documentation that the requisite degree of control existed over the alleged agent. No evidence exists to indicate that the risk of loss was borne by the importer. Moreover, no invoices from the manufacturer to the alleged agent were submitted. Consequently, the commissions are part of the price actually paid or payable.
545100 dated March 2, 1993.

No invoice or other documentation from the seller has been submitted. Customs has only been provided with an invoice from the purported agent, and that is insufficient to show that the alleged agent is not a seller. The only price upon which to base appraisement under transaction value is the total price on the invoice. In this case, the price actually paid or payable includes the payment for the alleged commission, and Customs has no authority to deduct the purported commission from the price.
545296 dated August 16, 1993.

The relationship between the importer and the agent does not support the existence of a bona fide buying agency. The importer does not exert sufficient control over the agent, and it is unclear whether the agent is related to any of the foreign manufacturers. The commissions paid to the alleged agent are not bona fide buying commissions. 545140 dated August 24, 1993.

COMPUTED VALUE

Headquarters Rulings:
usual profit and general expenses

A Canadian company imports merchandise into the U.S. by consigning inventory to storage warehouses operated by a related U.S. company. The merchandise is appraised pursuant to computed value. Certain general expenses related to the Canadian company's U.S. operations are recorded on the books and records of the Canadian company. These expenses include commissions paid to distributors on U.S. sales, the costs of conventions conducted in the U.S., commissions paid to marketing companies on U.S. sales, credit card fees on U.S. sales, management fees to operate U.S. warehouses, and depreciation expenses associated with assets used in the warehouses. These expenses related to the U.S. operations are carried on the Canadian company's books as general expenses and are properly a component of computed value. 545384 dated November 23, 1993.

An unusual and non-recurring expense for losses suffered by the producer may not be used to calculate the amount of profit and general expenses for computed value purposes. 545384 dated November 23, 1993.

COUNTERTRADE

Headquarters Rulings:
price actually paid or payable

The use of transaction value is precluded in a pure barter situation where the transaction is neither expressed nor settled in monetary terms, and there is no transaction value or objective and quantifiable way to determine that value. The importations must be appraised pursuant to the next available method.
544666 dated April 5, 1993.

DEFECTIVE MERCHANDISE

Headquarters Rulings:
price allowance

An allowance can be made in the value of imported merchandise to the extent of the damage if the import specialist determines at the time of importation that the merchandise was in fact defective.
544973 dated January 11, 1993.

The importer received gloves from the foreign seller which were found to be defective. The seller was promptly notified of the defect in writing, and the seller acknowledged the defect and explained the cause. The importer was then compensated for the defect, thereby changing the price actually paid or payable. The refund, together with the notice sent to the seller and the seller's written acknowledgement in return, suffices to permit an allowance in the value of the gloves.
545231 dated November 5, 1993.

FOREIGN TRADE ZONES

Headquarters Rulings:
zone value

The zone value is the price actually paid or payable in the transaction that caused the generator to be transferred from one subzone to another. Pursuant to 19 CFR 146.65(b)(2), the dutiable value of the generator is the zone value, less any included zone costs of processing or fabrication, general expenses and profit and any costs related to international shipment and insurance costs, and U.S. inland freight costs. In the instant case, there are no adjustments to be made to the zone value. 544818 dated April 1, 1993.

FORMULAS IN DETERMINING
THE PRICE ACTUALLY PAID OR PAYABLE

Headquarters Rulings:
provisional price

The fact that the price actually paid or payable for purposes of transaction value may be unknown at the time of exportation does not prevent appraisement under transaction value where the price is subject to a formula. However, in this case, there is no price actually paid or payable for shipments of merchandise that are entered under the provisional price because the price is subject to adjustment after exportation without the benefit of a formula. The absence of a firm price for the merchandise imported under these entries prevents appraisement pursuant to transaction value.
544666 dated April 5, 1993.

INTEREST

Headquarters Rulings:
financing arrangement

The interest payments made by the importer to the Korean bank are indirect payments to the seller, they are not part of an overall financing arrangement, or provided for in a written financing agreement. Therefore, they are to be included in the price actually paid or payable for the imported merchandise.
545277 dated June 14, 1993.
separately identified from price

The importer has provided a sample invoice which shows a C.I.F. price, inclusive of interest, from which interest of five percent is deducted in order to arrive at a C.I.F. price, net of interest. In T.D. 85-111 (provides that interest payments are not to form part of dutiable value if certain criteria are met), one of the requirements listed is that the interest charges must be identified separately from the price actually paid or payable. Here, the charges are distinguishable from the price and there is a written financing agreement. In addition, the interest rate does not appear to be excessive. Accordingly, the conditions imposed by T.D. 85-111 have been met, and the interest charges are not dutiable.
545094 dated April 1, 1993.

The payments made by the buyer to the seller for the interest charges are not part of the transaction value of the imported merchandise, provided the payment is charged to an interest expense account, and that if required, the buyer can prove that the subject merchandise is actually sold at the price declared, and the claimed rate of interest does not exceed the level for such transaction prevailing in the country where and when the financing was provided. 544970 dated October 20, 1993.

INVOICING REQUIREMENTS

Headquarters Rulings:
inconsistent documents presented at time of entry, T.D. 86-56

A discrepancy between the visaed invoice price of imported merchandise and a renegotiated invoice price of the merchandise does not mandate rejection of the entry, provided that the importer supplies Customs with commercial documentation sufficient to show that the difference between the original purchase price and the renegotiated price is due to a late delivery.
544911 dated April 6, 1993.

The buyer purchases garments manufactured in China, the price of which is negotiated with the provincial trade authorities, rather than with the actual manufacturer of the apparel. Once the price is set, the authorities issue a visaed invoice. Recently, the factories that produce the merchandise have requested that the buyer pay them a per garment fee in addition to the price negotiated with the provincial authorities. Unless the fee is paid, the garments may not be produced within the required time, if at all. The fee is paid directly to the factory and is not included in the amount shown on the visaed invoice. Because the fee is paid directly to the factory, there is a discrepancy between the visaed invoice and the commercial invoice. The discrepancies between the visaed invoices and the entry documentation have been adequately explained for purposes of T.D. 86-56. A corrected invoice is not necessary.
545239 dated June 30, 1993.

The importer has submitted visaed invoices which differ from the commercial invoices and packing lists. The visaed invoices leave 19,600 dozen articles, weighing 1752 kilograms with a value of $18,717.89 unaccounted for on the entry summary. The importer states that the visaed invoice is incorrect and that the price paid for the merchandise is that shown on the commercial invoice. The importer claims that a corrected visa was requested, but through inadvertence the value of the shipment was not corrected. In view of the inconsistencies between the visaed invoices and the commercial invoices and packing lists, and the failure of the importer to submit documentation to explain the inconsistencies, the appraised value is properly determined using the amount on the visaed invoices. 544847 dated September 3, 1993.

The importer contracts with a company to supply luggage to be sold in the importer's stores. The supplier subsequently
contracts with the seller to produce the luggage and export it to the United States. The importer establishes a letter of credit in favor of the supplier in the amount of the purchase price of the luggage. The supplier then assigns its right to the letter of credit to the seller. The seller subsequently pays a portion of the amount to the supplier as compensation for its role in the transaction. The supplier never takes title to the merchandise. Instead, the seller sends the merchandise to the port of export, at which point the importer takes title and assumes risk of loss. The visaed invoice accurately reflects the purchase price received by the seller, i.e., the total payment by the importer to the seller. The visaed invoice is acceptable under T.D. 86-56.
545416 dated December 10, 1993.

LEASE TRANSACTIONS

Headquarters Rulings:
reasonably adjusted transaction value

The U.S. company imports equipment leased from a related company. The leased equipment cannot be properly appraised under 19 U.S.C. 1401a(b)-(e) of the TAA. The equipment can be appraised pursuant to section 402(f), using the transaction value method reasonably adjusted to permit the rental value of the equipment over its full economic life to represent the value of the merchandise.
545112 dated June 7, 1993.

PRICE ACTUALLY PAID OR PAYABLE

Judicial Precedent:

Chrysler Corporation vs. United States, Slip Op. 93-186 (Ct. Int'l. Trade September 22, 1993).

The importer purchased engines from a foreign manufacturer. The agreement between the parties required a minimum number of engines to be purchased, otherwise shortfall and special application charges were to be paid to the manufacturer. The Court stated that the shortfall fees were in the nature of a contractual "penalty", and the financial responsibility was triggered by the failure to purchase engines. The fees were not part of the price actually paid or payable for the imported engines. In addition, the importer made payments to the manufacturer for tooling expenses and claimed these payments as assists. The Court agreed with Customs that the payments made for tooling expenses are not assists but rather, are part of the price actually paid or payable. The statutory requirements for an assist are not met because the manufacturer is not supplied with the actual tooling. The tooling expense was allocated over the number of engines intended to be produced rather than the actual number of engines imported.

Headquarters Rulings:
additional payments made by buyer to seller

The buyer purchases garments manufactured in China, the price of which is negotiated with the provincial trade authorities, rather than with the actual manufacturer of the apparel. Once the price is set, the authorities issue a visaed invoice. Recently, the factories that produce the merchandise have requested that the buyer pay them a per garment fee in addition to the price negotiated with the provincial authorities. Unless the fee is paid, the garments may not be produced within the required time, if at all. The fee is paid directly to the factory and is not included in the amount shown on the visaed invoice. The fee is part of the total payment made to, or for the benefit of the seller. The fee is determined by the seller and is for the imported merchandise. It is part of the price actually paid or payable for the merchandise.
545239 dated June 30, 1993.

The importer purchases merchandise from the foreign seller which is not immediately exported after manufacture. As a result, the seller is required by the British tax authority to pay a "value added tax" (VAT) on the goods which are stored. The VAT is itemized separately on the commercial invoice. The buyer pays the invoiced total to the seller which includes an
amount for the VAT. Subsequent to the exportation of the merchandise, the foreign governmental authority refunds the amount of the tax to the importer. The VAT payments included in the price actually paid or payable are properly included in the transaction value of the imported merchandise.
544644 dated September 29, 1993.

The importer is anticipating importing equipment made in Switzerland by the seller. To date, the seller has been selling the merchandise in U.S. dollars and has met the risk of currency exchange fluctuations by hedging the contracts, i.e., placing a forward contract on currency. The cost to the seller of the hedging has been included in the offered price of the merchandise and in the value declared for duty. The seller is now offering the importer the option of purchasing the merchandise in U.S. dollars or in Swiss Francs. If the importer pays in dollars, it will be charged a separate amount to cover the cost of hedging. If the importer pays in Francs, the importer hedges for its own account, in the U.S., also incurring a fee. The hedging costs paid by the importer to the seller are included in the price actually paid or payable. With respect to the costs incurred by the importer hedging for its own account, those payments are not made to or for the benefit of the seller and are not included in the price actually paid or payable.

544971 dated October 20, 1993.
insufficient information to determine the price actually paid or payable

The price actually paid or payable from the buyer to the seller in this case is not ascertainable from the contract. Even though the contract purportedly contains all of the terms, the importer later revealed that a $200,000 cash advance is provided to the seller. In the absence of specific information pertaining to the cash advance and any other amounts exchanged between the parties, Customs is not able to confirm the total payment made for the imported merchandise. Therefore, no authority exists to appraise the merchandise pursuant to transaction value. 545032 dated December 14, 1993.
price renegotiation

When the price of imported merchandise is renegotiated prior to the exportation of the merchandise, and there is no change in the delivery terms, the renegotiated price becomes the price actually paid or payable for the imported merchandise. When the price is renegotiated prior to exportation of the merchandise, and the delivery terms are changed from F.O.B to C & F, and the C & F price includes freight charges, the C & F price, less the international freight charge included
therein, is the price actually paid or payable for the imported merchandise.
544911 dated April 6, 1993.
warranty payment

The invoice value of imported machinery includes an amount for an extended two year warranty. The warranty payment is included in the total price for the merchandise. The warranty costs in question form an integral part of the merchandise upon importation. Consequently, the cost of the warranty is part of the price actually paid or payable and is dutiable under transaction value.
545153 dated December 21, 1993.

PROHIBITED APPRAISED VALUES

Headquarters Rulings:
arbitrary or fictitious values

The merchandise was appraised pursuant to section 402(f) at an adjusted transaction value by using a factor of 1.20 times the entered value in order to recover the difference for undeclared fabric. However, the method in which the merchandise was appraised is precluded, as it was based upon what amount to fictitious fabric calculations. The determination of the fabric amounts used in the production of the imported merchandise was based on nominal conversion factors, and not on the amount of fabric actually used in the production of the merchandise. Appraisement on the basis of arbitrary or fictitious values is specifically precluded under section 402(f)(2)(G).
223727 dated April 5, 1993.

QUOTA PAYMENTS

Judicial Precedent:

Murjani International Ltd. vs. U.S., Slip Op. 93-152 (Ct. Int'l. Trade August 11, 1993).

The importer claimed that Customs improperly included quota charges in the dutiable value of imported merchandise because it never paid the seller for quota charges. The Court rejected this claim and indicated that the importer did not provide sufficient evidence to prove that the seller was not paid for quota as part of the value of the invoices. In addition, the evidence was insufficient to prove that the quota payments were paid to a party other than the seller. The quota charges were held to be part of the transaction value of the imported merchandise.

Headquarters Rulings:
payments to unrelated third parties

Quota payments made by the buyer to an agent are not part of the price actually paid or payable for imported apparel provided that evidence submitted at the time of importation indicates that the payments do not inure to the benefit of the seller.
544866 dated September 29, 1993.

REBATES SUBSEQUENT TO IMPORTATION

Judicial Precedent:

Esprit de Corp vs. United States, Slip Op. 93-43 (Ct. Int'l. Trade March 26, 1993).

The U.S. buyer contracted to purchase shoes from the seller. The sale provided for F.O.B. Hong Kong terms, and the buyer was responsible for costs of shipping and insurance. Specified dates for shipment were agreed to between the parties. Prior to the initial shipping date, the seller informed the buyer that the shipping date requirements would not be met. In order to meet delivery commitments in the U.S., the parties agreed to ship the merchandise by air, rather than by sea. The seller agreed to reimburse the buyer for the cost differential between sea and air shipment. The seller reimbursed the buyer based upon the reconciliation of costs at the end of the shipping season. The merchandise was appraised at the invoiced unit values and no allowance was made for the freight differential reimbursement. The court agreed with Customs and indicated that the evidence does not support a finding that the shipping was a part of the price actually paid or payable or that price reductions were made. In addition, any rebate made after the date of importation must be disregarded in determining the transaction value.

Headquarters Rulings:
post-importation payments

The importer advances a stated amount to the seller which is held by the manufacturer as security for the cost of a mold to produce imported merchandise. It is agreed between the parties that the mold charges are fully refundable if a certain number of pieces are ordered. The importer's payment, characterized as a refundable mold deposit, is part of the price actually paid or payable. The existence of an arrangement between the importer and manufacturer to refund the importer's mold deposit, upon the order and purchase of a requisite number of units, does not constitute a permissible formula under transaction value. The post- importation refund of the mold deposit from the manufacturer to the importer, shall not be taken into account in determining the transaction value of the subject merchandise.
544867 dated December 15, 1993.- 22 -

RELATED PARTY TRANSACTIONS

Headquarters Rulings:
sales to unrelated buyers

A U.S. subsidiary of the foreign seller purchases merchandise from the related seller for its own account. In addition, the U.S. subsidiary acts as agent in transactions between the foreign seller and unrelated U.S. customers. In comparing the prices in the related and unrelated transactions, the only difference in the price in the two types of sales is the commissions paid to the U.S. subsidiary in the sales between the foreign seller and the unrelated U.S. purchasers. This supports the contention that the relationship does not affect the price actually paid or payable, and transaction value is the appropriate basis of appraisement between the related parties. 545087 dated December 7, 1993.

ROYALTY PAYMENTS AND LICENSE FEES

Headquarters Rulings:
dutiability of payments

The subject royalty/license fee payments made by the importer for the right to use the patented process and know how necessary to produce the finished products do not qualify as statutory additions to the price actually paid or payable under either section 402(b)(1)(D) or 402(b)(1)(E) of the TAA, and are not to be included in determining the transaction value of the importer merchandise. These determinations are to be made on a case by case basis, taking all relevant circumstances into consideration. 545114 dated September 30, 1993.

SALE

Headquarters Rulings:
bona fide sale

A U.S. company receives orders from its U.S. customers and, in turn submits the orders to its related company in Italy. There is no sale for export between the two related parties because the transfer does not constitute a sale. It is the sale between the Italian company and the final U.S. customer, as facilitated by the related U.S. company, that causes the merchandise to be exported to the United States. There is a transaction value, and the U.S. company is a selling agent. The commission the U.S. customer incurs for the U.S. company's services as a selling agent should be added to the price actually paid or payable. 544949 dated March 17, 1993.

The issue in this case is whether the transaction between the seller and the supplier, and/or that between the supplier and ultimate consignee are bona fide sales such that the price actually paid or payable constitutes a valid transaction value. The supplier took possession of the merchandise at the seller's plant for an instant, before title and risk of loss passed to the ultimate consignee. In essence, the supplier never held title nor did it bear the risk of loss. The supplier acted as selling agent for the seller, and the merchandise should be appraised under transaction value based on the price paid by the ultimate consignee. The difference between the seller's price and that of the supplier is a selling commission. 545105 dated November 9, 1993.

SALE FOR EXPORTATION

Judicial Precedent:

Synergy Sport International, Ltd. vs. United States, Slip Op. 93- 5 (Ct. Int'l. Trade January 12, 1993).

This case addresses the proper dutiable value of merchandise imported pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman and an ultimate U.S. purchaser. The issue is which sale, i.e., that between the foreign manufacturer and the middleman or the sale from the middleman to the U.S. purchaser, should form the basis of transaction value for appraisement purposes. The middleman in this case is the importer of record. The Court determined that the price actually paid or payable by the middleman/importer to the foreign manufacturer is the proper transaction value. The Court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm's length, free from any nonmarket influences and involving goods clearly destined for export to the United States.

Headquarters Rulings:
irrevocably destined for the U.S.

A delay in the exportation of merchandise to the U.S. will not negate the use of transaction value where the merchandise was destined for export at the time of the sale and there was no planned or actual use overseas. 544973 dated January 11, 1993.

The importer has submitted a 1981 invoice from a merchant overseas for eleven carpets. The carpets were exported to the U.S. in December, 1989. Transaction value is not valid as a means of appraisement. The merchandise was not sold for exportation to the United States. When the carpets were acquired in 1981, they were not irrevocably destined for exportation to the United States.
545137 dated May 21, 1993.
transaction value determination

A U.S. company receives orders from its U.S. customers and, in turn submits the orders to its related company in Italy. There is no sale for export between the two related parties because the transfer does not constitute a sale. It is the sale between the Italian company and the final U.S. customer, as facilitated by the related U.S. company, that causes the merchandise to be exported to the United States. There is a transaction value, and the U.S. company is a selling agent.

The commission the U.S. customer incurs for the U.S. company's services as a selling agent should be added to the price actually paid or payable.
544949 dated March 17, 1993.

Once it is determined that both the manufacturer's price and a middleman's price are statutorily viable transaction values, then the manufacturer's price, rather than the price from the middleman to the purchaser, is used as the basis for transaction value. However, the manufacturer's price constitutes a viable transaction value when the goods are clearly destined for export to the U.S. and the manufacturer and middleman deal with each other at arm's length, in the absence of any non-market influences that affect the legitimacy of the sales price. Here, the parties, i.e., the manufacturer and middleman, did not deal with each other at arm's length and the price was influenced by the relationship. There is only one statutorily viable transaction value which is acceptable, and that is the sale between the middleman and U.S. purchaser. 544579 dated September 30, 1993.

TRANSACTION VALUE

Headquarters Rulings:
provisional price

The fact that the price actually paid or payable for purposes of transaction value may be unknown at the time of exportation does not prevent appraisement under transaction value where the price is subject to a formula. However, in this case, there is no price actually paid or payable for shipments of merchandise that are entered under the provisional price because the price is subject to adjustment after exportation without the benefit of a formula. The absence of a firm price for the merchandise imported under these entries prevents appraisement pursuant to transaction value.
544666 dated April 5, 1993.
selling commissions

A U.S. company receives orders from its U.S. customers and, in turn submits the orders to its related company in Italy. There is no sale for export between the two related parties because the transfer does not constitute a sale. It is the sale between the Italian company and the final U.S. customer, as facilitated by the related U.S. company, that causes the merchandise to be exported to the United States. There is a transaction value, and the U.S. company is a selling agent. The commission the U.S. customer incurs for the U.S. company's services as a selling agent should be added to the price actually paid or payable. 544949 dated March 17, 1993.

The issue in this case is whether the transaction between the seller and the supplier, and/or that between the supplier and ultimate consignee are bona fide sales such that the price actually paid or payable constitutes a valid transaction value. The supplier took possession of the merchandise at the seller's plant for an instant, before title and risk of loss passed to the ultimate consignee. In essence, the supplier never held title nor did it bear the risk of loss. The supplier acted as selling agent for the seller, and the merchandise should be appraised under transaction value based on the price paid by the ultimate consignee. The difference between the seller's price and that of the supplier is a selling commission. 545105 dated November 9, 1993.
unrelated parties

Under the circumstances of this particular transaction, where all parties are clearly unrelated, the imported merchandise
for which material was obtained at no cost to the seller and for which the invoice price to the importer does not reflect any cost for such material, can be appraised under transaction value. In addition, since the material was not provided directly or indirectly by the buyer, or any party related to the buyer, the material is not an assist. 545172 dated May 6, 1993.
value of assist

The importer provides the foreign manufacturer with an assist. However, the value of the assist is based upon the average net selling price of the imported merchandise and is calculated on a quarterly basis. At the time of importation, the value of the assist is not known. Transaction value is an acceptable basis of appraisement only if, at the discretion of the port of entry, liquidation can be withheld in order to permit a determination of the cost of acquisition of the assist at a later date. If the port determines that liquidation cannot be withheld, the merchandise must be appraised in accordance with the first applicable method arrived at through a sequential application of the statutorily enumerated methods. 545086 dated April 1, 1993.

TRANSPORTATION COSTS

Headquarters Rulings:
foreign inland freight

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 19 CFR 152.103(a)(5).
544881 dated March 8, 1993.

The foreign inland freight charges shown on the seller's invoices are properly included in the price actually paid or payable for the imported merchandise. There is insufficient evidence that the merchandise was purchased on an ex-factory basis, and Customs has not been provided with either a through bill of lading or documentation of shipment by a single carrier or forwarder.
545223 dated September 3, 1993.

The transaction in this case is a C.I.F. sale and is governed by 19 CFR 152.103(a)(5)(ii) and (iii) regarding foreign inland freight. The importer has not submitted sufficient documentation indicating through shipment from the point of manufacture to the United States. The foreign inland freight charges may not be deducted from the price actually paid or payable.
545128 dated September 9, 1993.
international freight deduction

When the price of imported merchandise is renegotiated prior to the exportation of the merchandise, and there is no change in the delivery terms, the renegotiated price becomes the price actually paid or payable for the merchandise. When the price is renegotiated prior to exportation of the merchandise, and the delivery terms are changed from FOB to C & F, and the C & F price includes freight charges, the C & F price, less the international freight charge included therein, is the price actually paid or payable for the merchandise.
544911 dated April 6, 1993.

VALUE IF OTHER VALUES CANNOT BE DETERMINED

Headquarters Rulings:
reasonably adjusted transaction value

The U.S. company imports equipment leased from a related company. The leased equipment cannot be properly appraised under 19 U.S.C. 1401a(b)-(e) of the TAA. The equipment should be appraised pursuant to section 402(f), using the transaction value method reasonably adjusted to permit the rental value of the equipment over its full economic life to represent the value of the merchandise.
545112 dated June 7, 1993.

Transaction value is eliminated because the components are imported on consignment. In addition, the alternative bases of appraisement, i.e., 19 U.S.C. 1401a(c)-(e), are not applicable. Under section 402(f), the imported components should be appraised under transaction value established by a formula negotiated between the parties. The formula is set forth in an agreement between the parties and is fixed prior to exportation.
544845 dated November 9, 1993.

Based upon the circumstances presented, the appraising officer used reasonable ways and means to determine the appropriate value for the imported merchandise. Transaction value could not be used to appraise the merchandise because the price actually paid or payable could not be ascertained. That is, the total number of checks written by the buyer to the foreign suppliers did not correlate with the invoices submitted. Therefore, utilizing an appraisement method in accordance with 402(f) of the TAA and the authority provided for in section 500, the import specialist ascertained the price actually paid or payable for the merchandise in accordance with the amount indicated by the checks written.

545069 dated December 23, 1993.

VERIFICATION

Headquarters Rulings:

19 U.S.C. 1500

Entries were submitted which included documentation containing invoice notations, "No commercial value" and/or "Value for Customs purposes only", with no further explanation about the transactions. The import specialist requested further information from the importer concerning the pricing of the imported merchandise. The limited documentation submitted failed to establish the price actually paid or payable for certain entries. No thorough explanation of pricing was provided. 19 U.S.C. 1500 authorizes the appraising officer to weigh the nature of the evidence in appraising the merchandise under the constraints of section 402.
544824 dated May 4, 1993.

Based upon the circumstances presented, the appraising officer used reasonable ways and means to determine the appropriate value for the imported merchandise. Transaction value could not be used to appraise the merchandise because the price actually paid or payable could not be ascertained. That is, the total number of checks written by the buyer to the foreign suppliers did not correlate with the invoices submitted. Therefore, utilizing an appraisement method in accordance with 402(f) of the TAA and the authority provided for in section 500, the import specialist ascertained the price actually paid or payable for the merchandise in accordance with the amount indicated by the checks written.

545069 dated December 23, 1993.
insufficient evidence

The merchandise was properly appraised using the invoice price. In view of the importer's inability to provide Customs with a correct breakdown of the claimed non-dutiable charges or to furnish any other evidence to substantiate the claims, the refund request must be denied. 545395 dated September 30, 1993.

The importer has the burden of proving the validity of information on entry documents and the veracity of a transaction in question in order to properly appraise merchandise. In order for Customs to properly assess the merits of a claim, sufficient evidence must be provided. In this case, the importer has failed to submit adequate records to warrant Customs granting the request for a duty refund, nor has the importer adequately explained how the documents relate to or prove the claim.
545138 dated October 19, 1993.

TABLE OF CITATIONS

Court Cases:

Chrysler Corp. vs. U.S. . . . . . . . . . . . . . . 1, 16 Esprit de Corp vs. U.S. . . . . . . . . . . . . . . . 21 Murjani Int'l. vs. U.S. . . . . . . . . . . . . . . . 20 Synergy Sport Int'l. vs U.S. . . . . . . . . . . . . 25

Headquarters Rulings:

223727, 4/5/93 . . . . . . . . . . . . . . . . . . . . 19 544494, 6/28/93 . . . . . . . . . . . . . . . . . . . . 1 544579, 9/30/93 . . . . . . . . . . . . . . . . . . . . 26 544644, 9/29/93 . . . . . . . . . . . . . . . . . . . . 17 544666, 4/5/93 . . . . . . . . . . . . . . . . 8, 11, 27 544818, 4/1/93 . . . . . . . . . . . . . . . . . . . . 10 544824, 5/4/93 . . . . . . . . . . . . . . . . . . . . 31 544845, 11/9/93 . . . . . . . . . . . . . . . . . . . . 30 544847, 9/3/93 . . . . . . . . . . . . . . . . . . . . 13 544866, 9/29/93 . . . . . . . . . . . . . . . . . . . . 20 544867, 12/15/93 . . . . . . . . . . . . . . . . . 3, 21 544874, 10/22/93 . . . . . . . . . . . . . . . . . . . 3 544876, 9/3/93 . . . . . . . . . . . . . . . . . . . . 2 544881, 3/8/93 . . . . . . . . . . . . . . . . . . . . 29 544911, 4/6/93 . . . . . . . . . . . . . . . . 13, 18, 29 544949, 3/17/93 . . . . . . . . . . . . . . . . 24, 26, 27 544970, 10/20/93 . . . . . . . . . . . . . . . . . . . 12 544971, 10/20/93 . . . . . . . . . . . . . . . . . . . 17 544972, 10/20/93 . . . . . . . . . . . . . . . . . . . 3 544973, 1/11/93 . . . . . . . . . . . . . . . . . . 9, 25 544976, 3/17/93 . . . . . . . . . . . . . . . . . . 2, 5 545031, 6/30/93 . . . . . . . . . . . . . . . . . . . . 1 545032, 12/14/93 . . . . . . . . . . . . . . . . . . . 17 545036, 12/14/93 . . . . . . . . . . . . . . . . . . . 5 545038, 2/17/93 . . . . . . . . . . . . . . . . . . . . 6 545069, 12/23/93 . . . . . . . . . . . . . . . . . 30, 31 545086, 4/1/93 . . . . . . . . . . . . . . . . . . 4, 28 545087, 12/7/93 . . . . . . . . . . . . . . . . . . . . 22 545094, 4/1/93 . . . . . . . . . . . . . . . . . . . . 12 545100, 3/2/93 . . . . . . . . . . . . . . . . . . . . 6 545105, 11/9/93 . . . . . . . . . . . . . . . . . . 24, 27 545112, 6/7/93 . . . . . . . . . . . . . . . . . . 15, 30 545114, 9/30/93 . . . . . . . . . . . . . . . . . . . . 23 545128, 9/9/93 . . . . . . . . . . . . . . . . . . . . 29 545135, 8/27/93 . . . . . . . . . . . . . . . . . . . . 2 545137, 5/21/93 . . . . . . . . . . . . . . . . . . . . 25 545138, 10/19/93 . . . . . . . . . . . . . . . . . . . 31 545140, 8/24/93 . . . . . . . . . . . . . . . . . . . . 6

545153, 12/21/93 . . . . . . . . . . . . . . . . . . . 18 545172, 5/6/93 . . . . . . . . . . . . . . . . . . 3, 28 545176, 6/28/93 . . . . . . . . . . . . . . . . . . . . 5 545177, 6/28/93 . . . . . . . . . . . . . . . . . . . . 5 545223, 9/3/93 . . . . . . . . . . . . . . . . . . . . 29 545231, 11/5/93 . . . . . . . . . . . . . . . . . . . . 9 545239, 6/30/93 . . . . . . . . . . . . . . . . . . 13, 16 545266, 6/30/93 . . . . . . . . . . . . . . . . . . 2, 5 545277, 6/14/93 . . . . . . . . . . . . . . . . . . . . 12 545296, 8/16/93 . . . . . . . . . . . . . . . . . . . . 6 545384, 11/23/93 . . . . . . . . . . . . . . . . . . . 7 545395, 9/30/93 . . . . . . . . . . . . . . . . . . . . 31 545416, 12/10/93 . . . . . . . . . . . . . . . . . . . 14


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