HQ 545096A - Request for Internal Advice 45/92 Concerning Dutiability of Transportation Charges; Country of Exportation; Timing of Sale For Exportation. - United States International Trade Commision Rulings

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HQ 545096
May 31, 1994
CO:R:C:V 545096 er

CATEGORY: VALUATION

Area Director
Newark, New Jersey

RE: Request for Internal Advice 45/92 Concerning Dutiability of Transportation Charges; Country of Exportation; Timing of Sale For Exportation.

Dear Sir:

This is in response to your memorandum dated July 13, 1992, forwarding counsel's request for internal advice dated May 21 and November 13, 1991, submitted on behalf of their client, xxx. We regret the delay in responding.

FACTS:
xxx purchased various articles of apparel from yyy in Hong Kong. The articles were manufactured in China by zzz. The invoice between the seller, yyy, and the importer, xxx, shows an "FOB China" price, and identifies a separate amount for the freight charges incurred in shipping the merchandise from China to Hong Kong. The merchandise was subsequently exported from Hong Kong to the United States.

Counsel claim that the charges incurred to ship the subject merchandise from the manufacturer's plant in China to Hong Kong were incurred after the merchandise was sold for exportation and are therefore not dutiable. Counsel believe that the actual sale for exportation occurred in China because the shipping terms on yyy's invoice for goods shipped to xxx from Hong Kong are identified as "FOB China". Counsel reason that these shipping terms evidence that risk of loss passed to xxx at the time the goods left the manufacturer's factory in China for shipment to Hong Kong and, accordingly, that the sale for exportation must also occur at the same time. That risk of loss passed to xxx in China, counsel contend, is further evidenced by the existence of an insurance policy which counsel characterize as one which insured the merchandise "primarily for the beneficial interest of xxx from the time of departure from China."

Various exhibits were submitted with this request which include copies of Customs Notices of Action (CF 29's); invoices from yyy to xxx; invoices from zzz to aaa of Hong Kong; air waybills executed by China Travel Services; invoices for the air waybills from China Travel Services to yyy; invoices from Dart Express in China to yyy covering handling charges; and an insurance broker's note.

ISSUE:

Whether, under the circumstances presented, the transportation charges incurred to ship the subject merchandise from the manufacturer in China to the seller in Hong Kong are a part of transaction value.

LAW AND ANALYSIS:

As you know, transaction value, the preferred method of appraisement, is defined in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(b); TAA) as the "price actually paid or payable for the merchandise when sold for exportation to the United States", plus enumerated additions.

The "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as "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 the imported merchandise by the buyer to, or for the benefit of, the seller." (emphasis added)

Counsel characterize the charges incurred to ship the merchandise between China and Hong Kong as "inland freight" charges. Because China and Hong Kong are still regarded as two separate countries, this characterization of the charges is incorrect. Accordingly, application of section 152.103(a)(5) of the Customs Regulations, as amended by T.D. 84-235, which pertains to foreign inland freight and other inland charges, is not warranted. Under the circumstances, the charges in question are merely transportation charges.

For purposes of determining transaction value in appraising imported merchandise, the sale for exportation to the United States must take place at some unspecified time prior to the exportation of the goods. (HRL 543868 dated March 5, 1987). It is undisputed that the subject merchandise was manufactured in China and that a sale for exportation of the subject merchandise took place at some time prior to the exportation of the goods from Hong Kong. What is at issue is whether the sale preceded the time at which the transportation charges were incurred between China and Hong Kong, in which case China would be the country of exportation and the transportation charges between China and Hong Kong would constitute part of the charges incurred for the international shipment of the merchandise from the country of exportation to the United States. In other words, the transportation charges would not be dutiable as part of the price actually paid or payable.

A sale for exportation between zzz and xxx is not claimed; rather, counsel contend that while the sale for exportation was between yyy and xxx, the sale actually occurred in China, as evidenced by the "FOB China" shipping terms on yyy's invoice to xxx. Thus, counsel reason, the charges were incurred after the merchandise was sold for exportation and the basis for transaction value would be the "FOB China" price on the invoice, less the separately identified charges and expenses incurred for the prepaid transportation of the merchandise from China to Hong Kong. The validity of counsel's position depends on whether these transportation costs were in fact incurred after the merchandise was sold for exportation and, consequently, whether China was the country of exportation.

Because the shipping terms on yyy's invoice are "FOB China", counsel maintain that risk of loss passed to xxx at the time the goods left the manufacturer's plant and, along with passage of risk of loss, the sale for exportation occurred. While shipping terms are normally of value in evaluating when risk of loss and passage of title occur, they are meaningless in the instant situation unless the sale for exportation preceded or coincided with the shipment from China. Otherwise, the designation of such terms on yyy's invoice would have the effect of transferring risk of loss to xxx to a time preceding the moment when xxx purchased or contracted to purchase the merchandise.

Regarding merchandise imported from intermediate countries, section 152.23, Customs Regulations (19 CFR 152.23), provides that merchandise imported from one country, being the growth, production or manufacture of another country, shall for value purposes be treated as an exportation of the country from which it is immediately imported. However, if it appears by the invoice, bill of lading, or other evidence that the merchandise was destined for the United States at the time of original shipment, it shall be treated as an exportation of the country from which it was originally exported.

No evidence has been presented that the merchandise was destined for the United States at the time of original shipment from China. The documentation submitted reveals that the transportation of the merchandise between China and Hong Kong is arranged between yyy, zzz and various forwarders. Nowhere in this documentation is xxx mentioned. While the copy of the insurance broker's note demonstrates that both xxx and yyy are covered for their respective rights and interests, the note in no manner evidences that the subject merchandise was destined for the United States at the time it was shipped from the manufacturer's plant. Under the circumstances, in the absence of any evidence that the merchandise was destined for the United States at the time it was shipped from China, Customs finds that Hong Kong is the exporting country and the transportation charges incurred prior to the time the merchandise was exported from Hong Kong may not be deducted from the price actually paid or payable. (See, HRL 543643 dated September 24, 1986)

HOLDING:

For the reasons discussed above, the transportation charges incurred to ship the merchandise from China to Hong Kong may not be deducted from the price actually paid or payable, and thus remain a part of transaction value.

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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