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HQ 545032


December 4, 1993

VAL CO:R:C:V 545032 ER

CATEGORY: VALUATION

District Director
San Diego, CA

RE: Request for Internal Advice concerning the Applicability of Transaction Value as the Method of Appraisement for Fresh Produce from Mexico.

Dear Sir:

This is in response to the request for internal advice, dated June 15, 1992, filed by xxxxxxxxxxxxxxxxxxxx, Customs House Broker, on behalf its client, xxxxxxxxxxxxxxxxxxxxx (hereinafter referred to as "xxxxxxx" or "importer") which concerns the appraisement of fresh produce imported by [the importer] from xxxxxxxxxxxxxxxxxx (hereinafter referred to as "seller") in Mexico. The request file was forwarded to this office from you under separate cover dated June 23, 1992. A Significant Importation Report from the concerned Field National Import Specialist ("FNIS") was included and contains an account of his findings made pursuant to an interview on March 4, 1992, with the broker, importer and seller. We regret the delay in responding.

FACTS:

A contract exists between the importer and the seller in which the seller agrees to sell and the importer agrees to buy, each on an exclusive basis with the other, certain types of fresh oriental vegetables grown in Mexico. The type of produce is identified in Appendix A of the contract. The contract provides that the importer will furnish the seller with all the seed requirements and will reimburse the seller for the cost of boxes used for shipment of the produce to the U.S. The terms of sale are F.O.B. to a city along the United States/Mexican border with the seller ensuring compliance with all legal requirements and assuming risk of loss up to the point of delivery. The importer is responsible for payment of transportation costs, U.S. broker fees and other fees "relating to the American side of the United States/Mexican border."

The importer claims that the contract accurately reflects the price actually paid or payable for the merchandise and hence, that transaction value is the appropriate method of appraisement. During a meeting with the FNIS, however, the importer revealed that $xxx in cash is advanced by the importer to the seller. No mention of this cash advance is made in the contract and although a loan agreement was presented to the FNIS during the meeting, the importer was later unable to provide Customs with a copy of the agreement or with other documentation evidencing the the total payment from the importer to the seller.

Because the importer is unable to present Customs with verifiable data on which to base transaction value, the FNIS recommends appraisement under deductive value.

ISSUE:

How should imported fresh produce be appraised where the contract for the sale of the produce does not contain all information necessary to ascertain the price actually paid or payable?

LAW AND ANALYSIS:

The primary method of appraising imported merchandise is transaction value. The transaction value of imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States, plus additions for packing costs, selling commissions incurred by the buyer, assists, royalties or license fees, and proceeds of any subsequent resale that accrue to the seller. Section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(b)). The term "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 imported merchandise by the buyer to, or for the benefit of, the seller."

To establish transaction value, the amount actually paid or payable to the seller must be ascertainable. All monies paid to the foreign seller are generally part of the "price actually paid or payable" for the imported merchandise. Thus, if the buyer advances cash amounts to the seller to enable beginning production of the merchandise, those advances will be treated as being part of the "price actually paid or payable" for the imported merchandise. Where a contract exists, and where prices and the amount and means of recovering the advance are clear, appraisement under transaction value is acceptable. (See, HRL 544375 dated July 6, 1990)

In the instant case, the amount actually paid or payable to the seller under transaction value is not ascertainable from the contract. Even though the contract purportedly contains all the terms under which the price actually paid or payable is determined, the importer later revealed that a $xxx cash advance is provided to the importer by the buyer. Under transaction value, as discussed in the preceding paragraph, the $xxx cash advance would constitute part of the price actually paid or payable. Thus, had Customs relied on the terms of the contract to appraise the produce, the figure for the price actually paid or payable would have been incorrect. In the absence of specific information pertaining to the cash advance and any other amounts exchanged between the parties, we are unable to confirm that we have the total payment for the merchandise. Therefore, we have no authority to appraise the merchandise using transaction value.

In instances where transaction value cannot be determined, or cannot be used, sections 402(a)(B) and (C) provide for appraisement under section 402(c) -- transaction value of identical or of similar merchandise. (The terms "identical merchandise" and "similar merchandise" are defined in sections 402(h)(2) and 402(h)(4), respectively.) This means of appraisement is acceptable provided sufficient information is available in order for Customs to make any adjustment that may be necessary under section 402(c)(2). No specific information pertaining to section 402(c) has been submitted to Headquarters. If in fact a section 402(c) appraisement is possible, this means of appraisement may not be disregarded by either Customs or the importer. (HRL 543912 dated April 19, 1988)

Because transaction value cannot be determined and so long as transaction value of identical or similar merchandise is not available, then appraisement under deductive value is appropriate provided the statutory requirements of section 402(d) are met and that the necessary documentation and information is obtainable.

HOLDING:

Transaction value under section 402(b) does not exist where Customs is unable to determine the price actually paid or payable for the imported merchandise. Provided the transaction value of identical or similar merchandise also cannot be determined, then appraisement under deductive value is appropriate so long as it meets the statutory requirements identified in section 402(d) and that the necessary documentation and information are obtainable.

This decision should be mailed by your office to the internal advice requester no later than 60 days from the date of this letter. On that date 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 the public via the Diskette Subscription Service, Lexis, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

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