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HQ 544711




December 23, 1994

VAL CO:R:C:V 544711 RSD

CATEGORY: VALUATION

District Director
P.O. Box 610
112 West Stutsman
Pembina, North Dakota 58271

RE: Application for Further Review of Protest No. 3401-91-100002; appraisement of imported yarn; sale for exportation; three tiered sale; related parties

Dear Sir:

This is in response to your memorandum dated April 11, 1991, concerning an application for further review concerning protest No. 3401-91-100002, filed on behalf of White Buffalo Mills Inc., by its attorney, Ross and Hardies, on January 16, 1991. The protest concerns the appraisement of yarn imported from Canada. We regret the delay in responding.

FACTS:

White Buffalo Mills, Inc. (WBMI) is a United States corporation incorporated in the state of Nevada since 1982. It is a party related to White Buffalo Mills Limited (WBML), a Canadian manufacturer and exporter of yarn products. WBMI has been an exclusive United States distributor for all yarn products exported by WBML to the United States from Canada. The entries involved in this protest concern yarn sold by WBMI to the U.S. purchasers prior to its importation. The goods exported by WBML were usually delivered to a warehouse operated by H.A. & J.L. Wood and thereupon shipped to WBMI's customers. In a limited number of instances, goods are shipped directly from WBML to WBMI'S customers.

Until recently it has been the policy of the Custom Service to appraise imported merchandise under transaction value based on the sale which most directly caused merchandise to be exported to United States, Brosterhous, Coleman & Co. v. United States, 737 F.Supp. 1197 (Ct. Int'l Trade 1990).

However, since the time that this protest was filed two important court decisions were issued. In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir 1992), the Court of Appeals for the Federal Circuit reviewed the standard for determining transaction value when there are two sales which may be for exportation to the United States. In so doing, the court stated that Customs' policy of basing transaction value on the sale which most directly caused the merchandise to be exported to the U.S. proceeded from an invalid premise. Nissho Iwai, 982 F.2d 505, 511.

Instead the court in Nissho reaffirmed the principle of E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that a manufacturer's price, for establishing transaction value, is valid so long as the transaction between the manufacturer and the middleman falls within the statutory provision for valuation. In reaffirming the McAfee standard the court stated that in a three-tiered distribution system:

The manufacturer's price constitutes a viable transaction value when the goods are clearly destined for export to the United States and when the manufacturer and the middleman deal with each other at arm's length, in the absence of any non-market influence that affect the legitimacy of the sale price...[T]hat determination can be made on a case-by-case basis.

Id. at 509. See also, Synergy Sport International, Ltd. v. United States, 17 C.I.T.___, Slip Op. 93-5 (CT. Int'l Trade January 12, 1993).

As a general matter in situations of this type, Customs presumes that the price paid by the importer is the basis of transaction value. However, in order to rebut this presumption, the importer must in accordance with the court's standard in Nissho, provide evidence that establishes that at the time it purchased, or contracted to purchase, the imported merchandise the goods were "clearly destined for export to the United States" and that the manufacturer and middleman dealt with each other at "arm's length."

ISSUE:

Whether the protested merchandise was correctly appraised?

LAW AND ANALYSIS:

Since WBMI has failed to present any evidence substantiating that it dealt with the WBML at "arms length", as set forth by the court in Nissho, we have no legal basis to grant this protest.

HOLDING:

Because the WBMI and WBML were related and insufficient evidence was submitted to demonstrate that they dealt with each other at arms length, the price paid by WBMI to WBML can not serve as the basis of the transaction value of the imported merchandise.

You are directed to deny the protest. A copy of this decision with the Form 19 should be sent to the protestant.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the 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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