HQ 545714 - Proper transaction value of merchandise; Sale for exportation; 19 U.S.C. 1401a(b) - United States International Trade Commision Rulings

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HQ 545714

November 9, 1994

VAL CO:R:C:V 545714 LPF

CATEGORY: VALUATION

Robert J. Schott
Air Schott
P.O. Box 17373
Washington, D.C. 20041-0373

RE: Proper transaction value of merchandise; Sale for exportation; 19 U.S.C. 1401a(b)

Dear Mr. Schott:

This is in response to your letter of June 25, 1994, on behalf of Videotronic Uwe Bischke, Ltd. of Columbia, MD in which you request a ruling concerning the valuation of merchandise imported from Taiwan or Korea.

FACTS:

Your inquiry pertains to two scenarios concerning Videotronic Uwe Bischke, GmbH International ("Videotronic Intl."), a German company, and its wholly owned subsidiary Videotronic Uwe Bischke, Ltd. ("Videotronic Ltd."), a U.S. corporation. In one scenario Videotronic Ltd. purchases merchandise in Taiwan or Korea for direct shipment to the U.S. In order to benefit from the "buying power" of its parent company in Germany, these goods will be purchased under a Letter of Credit issued by Videotronic Intl. The terms of sale either will be Ex Works (EXW) or Free on Board/Free Carrier (FOB)/(FCA). An invoice will be issued by the manufacturer showing the EXW selling price, plus separate FOB charges, if any, of the merchandise. Videotronic Ltd. will pay for the merchandise by draft, wire transfer, credit or other exchange to Videotronic Intl. Payment to Videotronic Intl. will be for the manufacturer's invoice price of the merchandise plus an administrative cost added on by Videotronic Intl. and invoiced periodically to Videotronic Ltd. Videotronic Ltd. intends to make entry using the manufacturer's EXW invoice. You request a decision as to whether this invoice will establish transaction value in accordance with 19 U.S.C. 1401a(b).

In the other scenario, goods may be ordered by Videotronic Ltd. through Videotronic Intl. and shipped from the manufacturer to Videotronic Intl. and then to Videotronic Ltd. At the time of shipment from the manufacturer, the goods will be pre-designated for the U.S. market. You claim this will be well documented by
the manufacturer on the export invoice and by Videotronic Intl. The goods will be routed through Germany only for logistical efficiencies and/or transport economies. Videotronic Ltd. will pay for the merchandise by draft, wire transfer, credit or other exchange in favor of Videotronic Intl. Similarly, payment to Videotronic Intl. will be the manufacturer's invoice price of the merchandise plus an administrative cost added by Videotronic Intl. and invoiced periodically to Videotronic Ltd. You request a decision as to whether the commercial invoice from the manufacturer to Videotronic Intl. will establish transaction value.

ISSUE:

Whether transaction value, as established by the sale between the manufacturer and Videotronic Intl., is the appropriate basis for valuation of the subject merchandise.

LAW AND ANALYSIS:

The preferred method of appraisement is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a. Section 402(b)(1) of the TAA provides, in pertinent part, that 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 enumerated statutory 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...) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller."

A bona fide sale must exist between the Taiwanese or Korean manufacturer and Videotronic Intl. for the imported merchandise to be appraised based on the transaction value represented by that price. In J.L. Wood v. U.S., 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974), the U.S. Court of Customs and Patent Appeals defined the term "sale" as the transfer of property from one party to another for consideration. Although J.L. Wood was decided under the prior appraisement statute, Customs recognizes this definition under the TAA.

Several factors may indicate whether a bona fide sale existed between a potential seller and buyer. In determining whether property or ownership has been transferred, Customs considers whether the alleged buyer has assumed the risk of loss and acquired title to the imported merchandise. See Headquarters

Ruling Letter (HRL) 545105, issued November 9, 1993. In addition, Customs may examine whether the alleged buyer paid for the goods, whether such payments are linked to specific importations of merchandise, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as seller and buyer.

If the appraising officer would determine that sales occurred between the Taiwanese or Korean manufacturer and Videotronic Intl. as well as between Videotronic Intl. and Videotronic Ltd., the decisions reached in Nissho Iwai American Corp. v. United States, 786 F. Supp. 1002 (CIT 1992) rev'd 982 F.2d 505 (Fed. Cir. 1992) and Synergy Sport International, Ltd., v. United States, Slip. Op. 93-5 (Ct. Int'l Trade, decided January 12, 1993) become relevant. We note that although these decisions provide that the lower price should be used for transaction value when there is more than one statutorily viable transaction value, this standard would not be relevant if Videotronic Intl. was serving as an agent within one sale as opposed to a middleman between two sales (providing two statutorily viable transaction values).

In Nissho Iwai and Synergy, the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed the proper dutiable value of merchandise imported pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman, and a U.S. purchaser. In both cases the middleman was the importer of record. In each case the court held that the price paid by the middleman/importer was the proper basis for transaction value. Each court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm's length free from any nonmarket influences and involving goods clearly destined for export to the United States. The courts' analysis in this regard would be relevant in a determination as to whether the transactions between the manufacturers and Videotronic Intl. as well as between Videotronic Intl. and Videotronic Ltd. were transactions considered to be viable bases for transaction value.

We note that in the context of filing an entry, via Customs Form (CF) 7501, an importer is required to make a value declaration. As indicated by the language of the CF 7501 and the language of the valuation statute, there is a presumption that such transaction value is based on the price paid by the importer.

In keeping with the courts' respective holdings and our own precedent, we will continue to presume that an importer's declared transaction value is based on the price the importer paid. In further keeping with the courts' holdings, we note that in those situations where an importer requests appraisement based
on the price paid by the middleman to the foreign manufacturer (and the importer is not the middleman), the importer may do so. However, it will be the importer's responsibility to show that such price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must present sufficient evidence that the sale was an "arm's length sale," and that it was "a sale for export to the United States," within the meaning of 19 U.S.C. 1401a(b).

With regard to whether transaction value may be based on the sale between Videotronic Intl. and the foreign manufacturer, we note that the appropriate evidence would need to be tendered to the appraising officer (such as invoices, purchase orders, letters of credit, bills of lading, agreements between the parties including contracts, and proof of payment) to establish that the transaction was "a sale for export to the United States" (i.e., that at the time Videotronic Intl. purchased, or contracted to purchase, the imported goods, they were "clearly destined for the United States") and was an "arm's length sale" within the standard set forth by the court. At that point a determination may be made as to whether the transaction value of the imported merchandise should be based on the sale between Videotronic Intl. and the foreign manufacturer. Once all the relevant documentation is tendered to the appraising officer it can be determined whether the invoice between the parties, in and of itself, appropriately reflects the price actually paid or payable for the merchandise.

HOLDING:

The appraising officer may value the merchandise based on the sale from the manufacturer to Videotronic Intl. if the importer provides sufficient evidence that the conditions discussed above are met. However, the relevant documentation first must be submitted to the appraising officer before it is determined that the invoice between the parties, in and of itself, appropriately reflects the price actually paid or payable for the merchandise.

Sincerely,

John Durant, Director
Commercial Rulings Division

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