HQ 545603 - AFR of Protest No. 4103-93-100258; sale for exportation; Nissho Iwai; Synergy; quota charges; Generra; presumption that transaction value based on the price paid by the importer - United States International Trade Commision Rulings

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HQ 545603

March 10, 1995

VAL CO:R:C:V 545603 CRS

CATEGORY: VALUATION

District Director
U.S. Customs Service
6747 Engle Road
Middleburg Heights, OH 44130

RE: AFR of Protest No. 4103-93-100258; sale for exportation; Nissho Iwai; Synergy; quota charges; Generra; presumption that transaction value based on the price paid by the importer

Dear Sir:

This is in reply to an application for further review (AFR) of the above-referenced protest, dated September 25, 1993, filed by counsel Grunfeld, Desiderio, Lebowitz & Silverman on behalf of Transcorp Apparel Ltd. ("Transcorp;" the "protestant"). An additional submission was made under cover of a letter dated December 16, 1994, following a meeting with counsel on October 14, 1994. In response, your office made additional submissions on October 21, 1994, October 25, 1994, and January 13, 1995.

The AFR is one of ten originally forwarded by your office for our consideration. However, in response to Headquarters Ruling Letter (HRL) 545557 dated March 11, 1994, you identified this case as the lead protest for the five protests in which the manufacturer and middleman in the transactions described below are not related. The other five protests involving related parties have been consolidated under Protest No. 4103-93-100263, and will be addressed by HRL 545604. We regret the delay in responding.

FACTS:

Transcorp, a British Virgin Islands corporation, is the importer of record with respect to the protested entries. As of the date of the protest, Transcorp had one U.S. representative, Mr. David C. Williams, of the law firm of Neville, Peterson & Williams, and no U.S. offices.

Transcorp buys garments, usually on a cut, make and trim (CMT) basis, on behalf of its U.S. clients. However, rather than deal directly with the vendors of the merchandise, Transcorp employs Tillsonburg Company, Ltd., a Hong Kong corporation, to act on its behalf. Tillsonburg is responsible for procuring merchandise from vendors in Hong Kong and China, and is related to Transcorp through common ownership.

Through Tillsonburg, Transcorp contracts with vendors in the People's Republic of China and elsewhere (the "middlemen"). In some instances the middlemen are related to the manufacturer of the imported merchandise; in others, they are unrelated. Acting on Transcorp's instructions, the middlemen procure CMT merchandise from a number of different manufacturers. According to counsel, the middlemen obtain the necessary quota from sources other than the manufacturer. However, to the contrary, evidence submitted by your office suggests that the price paid by Transcorp does in fact include the cost of quota. In most instances Transcorp procures fabric and trim and supplies it free of charge to the manufacturers of the imported merchandise.

The protested merchandise consists of women's 55 percent linen, 45 percent cotton, woven blouses, and was appraised on the basis of transaction value. The merchandise was manufactured in China, and purchased through Lai Cheuk Garment Factory, Ltd., a Hong Kong middleman. As noted above, the instant case concerns only the situation in which the manufacturer and supplier are not related. Protestant maintains that the price actually paid or payable for purposes of determining transaction value should be the price paid by the middleman, Lai Cheuk, to the Chinese manufacturer. In addition, protestant maintains that quota charges paid to Lai Cheuk should not be included in the price actually paid or payable. However, you contend that transaction value should be determined with reference to the sale between Transcorp and Lai Cheuk and should include the cost of quota.

ISSUES:

The issues presented are: whether the sale between the manufacturer and the supplier constitutes a "sale for exportation" for the purposes of determining transaction value; and whether quota charges paid by the protestant to the middlemen are part of the price actually paid or payable for the imported merchandise.

LAW AND ANALYSIS:

Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. ? 1401a). The preferred method of appraisement is transaction value, which is defined as the "price actually paid or payable for merchandise when sold for exportation to the United States," plus certain enumerated additions, including the value, apportioned as appropriate, of any assist. 19 U.S.C. ? 1401a(b)(1). However, imported merchandise is appraised under transaction value only if, inter alia, the buyer and seller are not related, or if related, transaction value is found to be acceptable. 19 U.S.C. ? 1401a(b)(2)(A)-(B). While no evidence has been presented to support the use of transaction value, we have nevertheless assumed for purposes of this decision that it is the appropriate basis of appraisement.

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 is more than one sale which may be considered as being for exportation to the United States. In so doing, the court reaffirmed the principle of E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that a manufacturer's price, rather than the middleman's price, is valid so long as the transaction between the manufacturer and the middleman falls within the statutory provision for valuation. Nissho Iwai, 982 F.2d 505, 511. 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 influences that affect the legitimacy of the sales price....[T]hat determination can only 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. 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." However, it is the importer's responsibility to demonstrate that the standard set forth in Nissho and Synergy been met. E.g., Headquarters Ruling Letter (HRL) 545144 dated January 9, 1994. In the instant case, the presumption is therefore that transaction value is based on the price paid by Transcorp to the middleman, Lai Cheuk.

Counsel argues that transaction value should be based on the sale between the manufacturer and the middleman. However, no commercial invoice or other independent documentation has been presented in respect of the alleged sale between the manufacturer, Shenzen Hua Ya Garments Factory, and Lai Cheuk. In fact, the only information that has been offered in this respect is a questionnaire prepared by Transcorp which purports to show the price paid to the manufacturer. Given the lack of documentation concerning this alleged level of sale, it is our position that there is no basis for determining that the manufacturer's price constitutes a viable transaction value under Nissho. Accordingly, the presumption that the importer's price is appropriate basis of appraisement has not been overcome. See HRL 545648 dated August 31, 1994.

Finally, counsel has argued that quota charges should not be included in transaction value as part of the price actually paid or payable. Pursuant to section 402(b)(4) of the TAA, the term "'price actually paid or payable' means the total payment (whether direct or indirect . . .) made, for imported merchandise by the buyer to, or for the benefit of, the seller." 19 U.S.C. ? 1401a(b)(4)(A). In Generra Sportswear Co. v. United States, 905 F.2d 377 (1990), the court held in regard to quota payments that:

[a]s long as the . . . payment was made to the seller in exchange for merchandise sold for export to the United States, the payment properly may be included in trans action value, even if the payment represents something other than the per se value of the goods. The focus of transaction value is the actual transaction between the buyer and seller . . . .

Id. at 380. Under Generra, it is Customs' position that all payments to a seller are part of the price actually paid or payable for imported merchandise. See e.g., HRL 544640 dated April 26, 1991.

In the instant case transaction value should be determined with respect to the price paid by the importer to the middleman, i.e., the price paid by the buyer, Transcorp, to the seller, Lai Cheuk. Based on the information presented, the price paid by Transcorp to Lai Cheuk included the cost of quota. Consequently, these amounts are properly part of the price actually paid or payable under Generra. No authority exists to adjust these amounts once included.

Finally, we note that Transcorp procures fabric and trim which it supplies free of charge to the manufacturers for use in the production of the imported merchandise. The fabric and trim constitute assists pursuant to section 402(h)(1)(A) of the TAA. 19 U.S.C. ? 1401a(h)(1)(A). Assists are an addition to the price actually paid or payable under section 402(b)(1)(C) of the TAA. 19 U.S.C. ? 1401a(b)(1)(C). For purposes of this decision we have assumed that the value of any assists were included in transaction value.

HOLDING:

Pursuant to the foregoing and the evidence submitted, the protest should be denied in full. The sale between the manufacturer and the middleman does not constitute a sale for exportation pursuant to section 402(b)(1) of the TAA. Transaction value should be based on the sale between the middleman, Lai Cheuk, and Transcorp. Quota payments made in respect of the protested merchandise are part of the price actually paid or payable. The value of any assists should be included in transaction value.

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. Any reliquidation must be accomplished prior to mailing of the decision. Sixty days from the date of this letter 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, the Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director

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