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HQ 545499




October 13, 1994

CO:R:C:V 545499 RSD

CATEGORY: VALUATION

District Director of Customs
300 S. Ferry Street
Terminal Island, California 90731

RE: Application for Further Review of Protest Number 2704-93- 102342 concerning sale for export of merchandise imported pursuant to a tiered sales agreement

Dear Sir:

This is in response to your memorandum received in our office on December 21, 1993, forwarding the application for further review and protest (protest # 2704-93-102342) dated July 20, 1993, submitted by ., located in . has requested that source and manufacturers names, pricing merchandise ordered and quantity shipped, etc. be kept confidential. This information will be bracketed and will be deleted when this document is transferred to the Lexis and rulings module. We regret the delay in responding.

FACTS:

On January 4, 1993, . entered a shipment of made in Singapore. The merchandise was originally appraised based on the sale of the merchandise between a middleman, ( ) and . The manufacturer of the merchandise was [ ]. protested the liquidation of the entry because, based on the U.S. Court of Appeals for the Federal Circuit's decision in the Nissho Iwai American Corp. v. United States, 786 F.Supp. 1002 (CIT 1992) rev'd 982 F.2d 505 (Fed. Cir 1992), it felt that the appraisement of the imported merchandise was incorrect. They claim that appraisement should be based on the sale from the manufacturer to the middleman .

In response to the protest, your office requested that provide an invoice, purchase order, letter of credit or proof of other form of payment and any other documents to support the sale between the manufacturer and the middleman. In addition, your office requested documents to establish that there was a sale from the middleman to the importer.
responded to your request by furnishing a commercial/visa invoice dated December 12, 1992 from the manufacturer. This document showed as the consignee, but it did not show who was the buyer of the merchandise. The file also contains a letter from the middleman which states that it "has no share holding in the manufacturing companies and is not associated or related to the manufacturers. However, there is no indication to which manufacturers they are referring. A letter of credit drawn on from Tokai Bank Ltd. was also submitted, but there is no indication on the document who received the payment. protest also made reference to a contract between itself and the middleman and an agreement between itself, the middleman and manufacturer, but the file does not contain these documents.

ISSUE:

Whether the documentation presented is sufficient to establish a sale for exportation to United States between the manufacturer and the middleman?

LAW AND ANALYSIS:

As you know 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. ยง 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 for the United States," plus certain enumerated additions. For purposes of determining transaction value in appraising imported merchandise, a sale for exportation to the United States must take place at some unspecified time prior to the exportation of the goods. (HRL 545434, dated May 31, 1994).

Until recently it has been the policy of the Custom Service to appraise imported merchandise under transaction value based on the sale which most directly caused merchandise to be exported to United States, Brosterhous, Coleman & Co. v. United States, 737 F.Supp. 1197 (Ct. Int'l Trade 1990).

However, 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 stated that Customs' policy of basing transaction value on the sale which most directly caused the merchandise to be exported to the U.S. proceeded from an invalid premise. Nissho Iwai, 982 F.2d 505, 511.

Instead the court in Nissho reaffirmed the principle of E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that a manufacturer's price, for establishing transaction value, 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 influence that affect the legitimacy of the sale price...[T]hat determination can 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."

In the instant case, is claiming that the sale for exportation occurred between the manufacturer and the middleman and that this sale should be the basis of transaction value. However, our review of the file indicates that the evidence presented is inconclusive as to whether a sale occurred between the manufacturer and middleman. Although a visaed" commercial invoice" from manufacturer was submitted, it only shows that was the consignee and does not indicate who was the buyer, as that line on the form is blank. The document also does not show the method of payment. In addition, the letter of credit that submitted fails to state who received the payment for the merchandise. On this basis, it is not possible to know if the middleman bought the merchandise from the manufacturer and what price they paid for it.

Accordingly, we find that the documentation is insufficient to establish that sale for exportation to the United States took place between the manufacturer and the middleman. Therefore, has not overcome the presumption that price that it paid to the middleman should serve as the basis of transaction value.

HOLDING:

Because insufficient evidence was submitted to demonstrate that a sale for exportation occurred between the manufacturer and middleman, the transaction value of the imported merchandise will continue to be based upon the price paid for the imported merchandise by the importer.

You are directed to deny the protest. A copy of this decision with the Form 19 should be sent to the protestant. 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 to the public via the Diskette Subscription Service, Lexis, the Freedom of Information Act and other public access channels

Sincerely,

John Durant, Director

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