HQ 545638 - Application for Further Review of Protest No. 3001-93-100849; Headquarters Ruling Letter 544666; transaction value; related parties; transaction value of similar merchandise - United States International Trade Commision Rulings

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HQ 545638

February 13, 1995

VAL CO:R:C:V 545638 IOR

CATEGORY: VALUATION

District Director
Seattle, Washington

RE: Application for Further Review of Protest No. 3001-93-100849; Headquarters Ruling Letter 544666; transaction value; related parties; transaction value of similar merchandise

Dear Sir:

The subject protest and application for further review concerns the appraisement of alumina imported by xxxxx xxxxxxxx and xxxx xxxxxxx (hereinafter referred to as the "buyer"), a U.S. company. Members of my staff in the Value Branch met with representatives of the buyer on September 12, 1994. Following the meeting, the buyer has made a submission dated October 10, 1994. We regret the delay in responding.

FACTS:

The alumina was imported from Australia and entered from May 5, 1990 through April 20, 1992 based on transaction value. The buyer protests appraisement and liquidation of the merchandise based on the transaction value of similar merchandise. The buyer, a U.S. company, purchases alumina from a Netherlands company, the seller. Both the buyer and seller are within a group of companies owned by a Dutch parent company. The alumina is purchased pursuant to an alumina/aluminum exchange agreement entered into in 1988. The agreement provides that the alumina is to be sold FOB load port and the price is to be expressed in a barter ratio of 1:9.9 (1 ton of aluminum to 9.9 tons of alumina). For purposes of invoicing, the price shown is the average Metals Week U.S. Transaction Price (USTP) for the month prior to the month of shipment. Metals Week is a weekly trade periodical that reports daily and weekly Comex positions, New York Mercantile Exchange positions, London Metals Exchange prices, etc. The agreement provides that the buyer shall deliver to the seller, at a mutually agreed upon Japanese port, one ton of aluminum for every 9.9 tons of alumina, as payment for the alumina. The aluminum is to be delivered monthly on a CIF basis. At its option, the seller may elect not to take delivery of any months' shipment of aluminum (which are fixed in the agreement at 1060 or 1080 tons), in which case the buyer would pay the seller an amount based on the USTP for the calendar month preceding the scheduled shipment, per ton of the scheduled shipment, "in partial consideration for alumina delivered."

The subject transactions were the subject of a Headquarters Internal Advice decision in HRL 544666 dated April 5, 1993. In HRL 544666 we found that the relationship between the parties may have influenced the "price " of the alumina because the exchange ratio was established by the related parties. In addition we found that because there were no money transfers between the parties, the transactions were neither expressed nor settled in monetary terms, and transaction value could not be determined objectively. Therefore the sales were subject to a condition or consideration for which a value cannot be determined, and the merchandise could not be appraised based on transaction value. In HRL 544666 it was suggested that the merchandise could be appraised based on the transaction value of identical or similar merchandise. The concerned import specialist has not been able to determine that the "price" between the buyer and seller was not influenced by the relationship between the buyer and seller and has determined that the "price " between the buyer and seller does not approximate the available test values. The subject merchandise was appraised based on the transaction value of similar merchandise, using the lowest acceptable available value.

The buyer takes the position that its transactions with the seller are at arms length. The agreement between the buyer and seller was for a long term. Most alumina is purchased based on a percentage of the base market price of aluminum. Over the past four years this percentage has varied between 8% and 19 % depending on the year and whether the purchase was on a spot or contract basis. In the agreement the buyer and seller arrived at a 10.1% of the aluminum market price (equivalent to an exchange ratio of 9.9 tons of alumina per ton of aluminum) in 1988, when long term values were at the 8% range. Paying a greater percentage in 1988 enabled the buyer to negotiate a seven year agreement. The buyer concludes that virtually all importers of alumina pay different prices based on when they negotiated their contract, or if there is no term contract, whatever the spot price may be. The buyer takes the position that because the agreement provides for the option of paying cash for the alumina, the transactions are expressed in monetary terms, or can be determined by the arms length exchange ratio formula, and therefore the imported merchandise should be appraised based on transaction value. In the alternative, the importer takes the position that if its merchandise is appraised on the basis of the transaction value of identical or similar merchandise, this method should be used to appraise all alumina it purchases from the seller pursuant to the agreement, and not only those entries for which the buyer's invoiced "price" is lower than that of other importers.

ISSUE:

What is the appropriate method of appraisement for the alumina imported by the buyer.

LAW AND ANALYSIS:

The preferred method of appraisement is transaction value which is defined by ?402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA, 19 U.S.C. 1401a(b)) as "the price actually paid or payable for the merchandise when sold for exportation to the United States..." plus certain additions specified in 402(b)(1) (A) through (E). The term "price actually paid or payable" is defined in TAA ?402(b)(4)(A) as:

...the total payment (whether direct or indirect...) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

In its protest the buyer takes the position that the transaction value can be determined by the "formula" set by the parties for determining the monetary value of the imported alumina. According to the buyer, the alumina exchange ratio of one ton of aluminum to 9.9 tons of alumina was set by the parties. This is a formula based on a ratio set by the related parties, and is not the type of formula provided for in Customs Regulations, 19 C.F.R. ?152.103(a)(1).

The parties are related, therefore pursuant to TAA ?402(b)(2)(B) transaction value is acceptable only if an examination of the circumstances of the sale indicates that the relationship between the buyer and seller did not influence the price actually paid or payable or if the transaction value of the imported merchandise closely approximates the transaction value of identical or similar merchandise in sales to unrelated buyers in the U.S. or the deductive or computed value for identical or similar merchandise. The concerned import specialist has been unable to find that the "price" between the buyer and seller was not influenced by their relationship. In this case, the agreement between the parties sets forth the monetary value of the imported alumina as 10.1% of the market price for aluminum. Although the agreement between the parties specifies the monetary amount that the buyer can pay to the seller in the event the seller elects not to take delivery of aluminum, the agreement also states that this is to be "in partial consideration" only. This suggests additional consideration of which we have no evidence. Further, there is no evidence that the buyer has ever paid money for the imported alumina, and therefore no evidence that the amount would represent the true monetary value of the alumina. We find that the buyer has failed to provide sufficient evidence that the "price" was not influenced by the relationship between the parties. The concerned import specialist has determined that the "price " between the buyer and seller does not approximate the available test values. For the foregoing reasons, transaction value is precluded as a method of appraisement.

The next alternative bases of appraisement in order of statutory preference are transaction value of identical merchandise and transaction value of similar merchandise under ?402(c) of the TAA. The identical or similar merchandise must be exported to the U.S. at or about the time as the merchandise being appraised. In this case the buyer does not claim that the imported alumina is not similar to the imported alumina upon which appraisement was based, or that the values should be adjusted to take into consideration the quantity and commercial levels of the sales. We do not have any information that the merchandise should have been appraised on the basis of transaction value of identical merchandise. Therefore we will assume that the alumina upon which appraisement was based was similar to the alumina being appraised and the imported alumina can be appraised on the basis of the transaction value of similar merchandise. This method of appraisement should be used for all alumina purchased by the buyer from the seller, not only those entries in which the buyer's alumina has a value lower than that of other importers. Of course, if there exist two or more transaction values for similar merchandise exported to the U.S. at or about the same time as the subject merchandise, appraisement shall be based on the lower or lowest of such values in accordance with TAA ?402(c)(2).

HOLDING:

The imported merchandise was appropriately appraised on the basis of the transaction value of similar merchandise.

Consistent with the decision set forth above, you are hereby directed to deny the subject protest. 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 the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

John Durant, Director
Commercial Rulings Division

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