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HQ 954720




February 6, 1995

CLA-2 CO:R:C:M 954720 LTO

CATEGORY: CLASSIFICATION

TARIFF NO.: 8703.23.00

District Director
U.S. Customs Service
La Puntilla #1
San Juan, Puerto Rico 00903

RE: Protest 4909-93-100039; Suzuki Sidekick and Samurai; sports- utility vehicles; HQs 545144, 955723, 957352; Marubeni America Corp. v. U.S.; Nissho Iwai American Corp. v. U.S.

Dear District Director:

The following is our decision regarding the request for further review of Protest 4909-93-100039, which concerns the classification and valuation of 1990/1 model year Suzuki Sidekick and Samurai sports-utility vehicles under the Harmonized Tariff Schedule of the United States (HTSUS). The subject merchandise was entered on January 26, 1989, and the entry was liquidated on January 15, 1993. The protest was timely filed on April 14, 1993.

FACTS:

The articles in question are 1990/1 model year Suzuki Sidekick and Samurai (soft-top and hard-top) sports-utility vehicles. Both are 2-door motor vehicles with rear seats and other rear passenger amenities, such as, seat belts, carpeting, footwells, ashtrays (Sidekick), stereo speakers, handholds, dome light and headliner. The Samurai (soft-top version) and Sidekick also have rear and side windows. The Samurai has a leaf-spring type rear suspension, while the Sidekick rear suspension has coil springs and shock absorbers with a center "wishbone" arm over the rear axle housing. The spare tire is fitted on the outside rear, and the jack under the front seat, of both vehicles.

The protestant contends that the vehicles are classifiable under heading 8703, HTSUS, as motor vehicles principally designed for the transport of persons. The vehicles were classified upon liquidation under heading 8704, HTSUS, as motor vehicles for the transport of goods.

Suzuki del Centro (the "protestant"), is one of a number of automobile dealerships owned by San Juan Suzuki, Inc. (SJS). On behalf of the protestant, and on behalf of its other dealerships, SJS orders Suzuki automobiles from Interamericana Trading Corp. (ITC), a Barbadian distributor responsible for the sale of Suzuki motor vehicles throughout the Caribbean. There is no information as to how payment is effected in this transaction.

Upon receipt, ITC places protestant's orders with Suzuki Motor Co., Ltd., Japan ("Suzuki"), the manufacturer of the vehicles. The terms of sale governing the ITC-Suzuki transaction are C&F. The commercial invoices prepared by Suzuki reflect ITC as the buyer and the protestant as the consignee. Payment is effected by letter of credit with ITC as principal and Suzuki as beneficiary. The automobiles are shipped directly from Japan to Puerto Rico.

The protestant, SJS and ITC share common ownership. No information has been presented as to the relationship between ITC and Suzuki.

The protestant maintains that appraisement should be based on the sale between the manufacturer and the middleman. However, the entry was liquidated using the sale between the middleman and the protestant as the basis of appraisement.

ISSUE:

1. Whether the 1990/1 model year Suzuki Sidekick and Samurai are classifiable as motor vehicles principally designed for the transport of persons under heading 8703, HTSUS, or as motor vehicles for the transport of goods under heading 8704, HTSUS.

2. Whether the sale between the manufacturer and the middleman constitutes a sale for exportation for the purposes of determining transaction value.

LAW AND ANALYSIS:

1. Classification

The General Rules of Interpretation (GRI's) to the HTSUS govern the classification of goods in the tariff schedule. GRI 1 states in pertinent part that "for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes . . . ."

The headings at issue are as follows:

8703 Motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 8702), including station wagons and racing cars

8704 Motor vehicles for the transport of goods

In Marubeni America Corp. v. U.S., Appeal No. 93-1467 (September 7, 1994), the U.S. Court of Appeals for the Federal Circuit (CAFC) affirmed the determination of the Court of International Trade that the 1989 and 1990 model year Nissan Pathfinder was classifiable as a motor vehicle principally designed for the transport of persons under heading 8703, HTSUS, dutiable at 2.5 percent, rather than as a motor vehicle for the transport of goods under heading 8704, HTSUS, dutiable at 25 percent (pursuant to subheading 9903.87.00, HTSUS). See Marubeni America Corp. v. U.S., 821 F.Supp. 1521 (1993).

The CAFC stated that for a vehicle to be classified under heading 8703, HTSUS, the "vehicle's intended purpose of transporting persons must outweigh an intended purpose of transporting goods." In making this determination, the Court stated that it is necessary to consider both the structural and auxiliary design features. Additionally, the Court found that the number of doors on the vehicle was not determinative.

Structural features that would lead to the classification of a vehicle under heading 8703, HTSUS, include: a rear passenger seat; side and rear windows (in an enclosed vehicle); a rear suspension suitable for rear passengers; and any other intrusions into the vehicle's cargo-carrying capability, such as, the inclusion of a spare tire in the rear of the vehicle.

Relevant auxiliary features include: rear seat stereo outlets, ashtrays, cubbyholes, arm rests, handholds, footwells, seat belts and child seat tie down hooks; carpeted cargo area; and any other passenger amenities.

The 1990/1 model year two-door Suzuki Samurai and Sidekick have rear passenger seats that are not removable. The Samurai (soft-top version) and Sidekick have rear and side windows. The rear suspensions of the vehicles are particularly suitable for rear passengers (smoother ride, smaller payload than standard pickup truck). Further, while there are not any other intrusions into the rear passenger area of either vehicle (i.e., the spare tire is located on the outside rear, and the jack under the front seat, of both vehicles), the vehicles have several features designed for the comfort and safety of rear passengers. For - 4 -
example, the Samurai has rear footwells and is semi-carpeted, while the Sidekick has footwells, ashtrays and is fully carpeted. Moreover, both vehicles are fitted with rear seat belts, handholds and stereo speakers.

It is our opinion that the structural and auxiliary design features of the 1990/1 model year Samurai and Sidekick, like the Nissan Pathfinder, demonstrate that the vehicles' intended purpose of transporting persons outweighs an intended purpose of transporting goods. See HQ 957352, dated December 27, 1994 (Ford Explorer); HQ 955723, dated January 6, 1995 (Isuzu Trooper and Amigo). In accordance with Marubeni, the vehicles are classifiable under heading 8703, HTSUS.

2. Value

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 under the TAA is transaction value, defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus certain enumerated additions. 19 U.S.C. ? 1401a(b)(1). However, if the buyer and seller are related, transaction value is acceptable only if the relationship did not influence the price actually paid or payable, or the price approximates certain "test values." 19 U.S.C. ? 1401a(b)(2)(B).

In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992), the Court of Appeals for the Federal Circuit reaffirmed the principle established by 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. 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. However, 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." Customs has held that it is the importer's responsibility to demonstrate that the standard set forth in Nissho and Synergy has been met. See HQ 545144, dated January 19, 1994.

In the instant case the imported merchandise was appraised on the basis of the price paid by the importer/protestant to Interamericana, rather than on the basis of the price paid by Interamericana, the middleman, to the manufacturer, Suzuki. No evidence has been presented with respect to whether the first sale, i.e., that between Suzuki and Interamericana, meets the standard of Nissho. Specifically, no evidence has been presented to establish that the vehicles purchased from Suzuki were "clearly destined for exportation to the United States," nor that the sale between the manufacturer and the middleman was transacted at "arm's length." Consequently, the protestant has not met its burden of showing that the transaction value of the protested merchandise should be based on the sale between Suzuki and Interamericana.

HOLDING:

1. The 1990/1 model year Suzuki Samurai and Sidekick are classifiable under subheading 8703.23.00, HTSUS.

2. The sale between the middleman and the importer/protestant constitutes the sale for exportation for the purpose of determining transaction value.

The protest should be GRANTED with regard to the classification issue, but DENIED with regard to the valuation issue. In accordance with section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision, together with the Customs Form 19, 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 the 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 - 6 -

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Sincerely,

John Durant, Director

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