HQ 559007 - Application for Further Review of Protest No. 3001-93-100634 concerning wax candles; country of origin; extension of liquidation; transaction value; antidumping duties - United States International Trade Commision Rulings

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HQ 559007

May 24, 1995

CLA-2 R:C:S 559007 WAS

CATEGORY: CLASSIFICATION

District Director
U.S. Customs Service
1000 2nd Avenue
Suite 2200
Seattle, Washington 98104-1049

RE: Application for Further Review of Protest No. 3001-93-100634 concerning wax candles; country of origin; extension of liquidation; transaction value; antidumping duties

Dear Sir/Madame:

This is in reference to the above-referenced Application for Further Review, which was timely filed and submitted by Mr. Anthony L. Piazza, on behalf of Liss Bros. Inc., concerning the proper country of origin, method of valuation, and extension of liquidation for entries of wax candles.

FACTS:

Protestant contends that Customs improperly liquidated the entries of wax candles as subject to an antidumping order at the rate of duty of 54.21 percent based upon the erroneous claim that the candles were manufactured in China, rather than Macau. Protestant claims that Customs position that the wax candles were manufactured in China and are subject to the antidumping duties is without basis in fact or law.

According to the information presented, the protestant, Liss Brothers, Inc., imported candles from Rodenia, Ltd., a Hong Kong company, owned by Simon Wong. Protestant maintains that since Customs already examined and accepted the certificates or origin as valid, in the absence of compelling evidence to the contrary, Customs is bound by this acceptance. Protestant submits that had Customs rejected the certificate initially, the importer could have refused the candles and shipped the cargo back to the shipper. It is claimed that the fact that the certificates have been found genuine by Customs and not revoked by the issuing authority after the extended and intensive investigation is, of itself, evidence of their "veracity and conclusive nature."

Protestant maintains that at the time of entry, there was no evidence indicating any place but Macau as the country of origin. It is claimed that Customs has not presented anything to indicate that the certificates of origin were counterfeit, false or fraudulently issued. Protestant claims that a presumption of regularity attaches to the transaction and to the documentary record including the invoices, packing lists and certificates of origin under these circumstances. Unless evidence is produced to demonstrate fraud, protestant states that these documents must be accepted as valid and true. Protestant states that to flatly reject the probative value of the certificate of origin issued by Macau and, in effect, to declare, by the act of assessing antidumpting duties, that this merchandise is of Chinese-origin, without any credible evidence, is arbitrary and capricious.

Protestant also maintains that since Customs asserts that the country of origin for the candles is China, this affirms that the transaction value resulting from the sale from Macau to the U.S. is void. Protestant contends that

"by its claim that the goods are of China origin Customs is saying that the sale which most directly causes the merchandise to be exported to the U.,S. is a sale from the PRC. By its claim Customs has rendered nugatory the sale from Macau to the United States. By so doing transaction value has been rendered unavailable as a basis for appraisement."

Protestant also claims that since Customs accepted the entry of wax candles as covering goods from Macau and not from China, and also failing to take a deposit of 54.21 percent antidumping duty, it is bound by the application of 19 U.S.C. 1504(a) and the entry must be deemed liquidated within one year. In addition, protestant claims that Customs has failed to issue a notice of extension, thereby invoking the one year limitation on liquidation set forth in 19 U.S.C. 1504(a).

ISSUES:

(1) Whether the existence of a Certificate of Origin for the wax candles binds the U.S. to accept Macau as the country of origin.

(2) Whether the merchandise was properly appraised using transaction value based on the price paid by the importer.

(3) Whether the entries were deemed liquidated by operation or law. LAW AND ANALYSIS:

I. Country of Origin of the Wax Candles

In the instant case, government certification of a Certificate of Origin Form A is not recognized by the U.S. Customs Service as an official act of a foreign government. The Customs Service is not required to unconditionally accept Certificates of Origin Form A's issued by a foreign government as presumptive evidence that merchandise is from a particular country named on the certificate if the district director has reason to believe that the country of origin is different. The evidence submitted in connection with this protest indicates that beginning in 1989, the Office of the Senior Customs Representative/Hong Kong (SCR/HK) conducted an investigation into importations of wax candles made by the several factories in Macau. During the course of the investigation, it was determined by the SCR/HK that all candles sold or exported by Rodenia and Wong were in fact products of China and were merely transshipped from China through Macau in order to evade anti-dumping duties and in violation of the country of origin marking requirements. Based on information collected by the SCR/HK, it was reported that the majority of the wax candles exported from Macau were products of China and that none of the candle factories in Macau had the equipment or capability to produce the quantity of candles claimed to be exported from Macau. Morevoer, it was reported that only a very small amount of holiday candles were being produced in Macau and that the machines installed at the four factories were used in the production of samples only. The evidence indicated that orders for candles were subcontracted to factories in China for production, while in some cases, the trading company in Hong Kong would request the candle factories in Macau to apply for Macau Certificates of Origin to cover the Chinese candles. Moreover, the evidence revealed that at the request of Customs, the Macau Economics Commission conducted its own investigation into the wax candle industry in Macau and as a result revoked numerous Certificates of Origin which had been issued by the Government of Macau.

The importer erroneously claims that Customs examined the Certificate of Origin which was issued by the "Macau Servicos de Economia" on these shipments prior to release of the merchandise. In fact, the evidence indicates that Customs issued a Request for Information (CF 28) requesting the Certificates of Origin as well as the name of the manufacturer from protestant days after release of the merchandise on each of the subject entries. The importer has not submitted any information, other than the Certificates of Origin, to show that the goods were in fact produced in Macau. Based on information submitted by the SCR/HK and the investigation conducted by the Macau Economics Commission, there is evidence that the wax candles which are subject to this protest were manufactured in China and transshipped through Macau. As no additional evidence has been submitted by protestant to show that the subject wax candles were produced in Macau, the protest should be denied with respect to protestant's claim that the wax candles were produced in Macau and are consequently not subject to the applicable antidumping duties.

II. Valuation of the Merchandise

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. 19 U.S.C. 1401a(b)(1).

Until recently, when there was more than one sale which could be considered as being for exportation to the United States, Customs appraised imported goods based on the sale which "most directly caused the exportation", see, e.g., Brosterhous, Coleman & Co. v. United States, 14 CIT 307,309, 737 F.Supp. 1197, 1199 (1990). 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 and stated that Customs' policy of basing transaction value on the sale which most directly caused the merchandise to be exported to the United States proceeded from an invalid premise. Nissho Iwai, 982 F.2d 505, 511.

Instead, the court in Nissho Iwai reaffirmed the principle of E.C. McAffee 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 McAffee 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).

Counsel for protestant states the following: "By its claim that the goods are of China origin Customs is saying that the sale which most directly causes the merchandise to be exported to the United States is a sale from the PRC." As explained above, the "most directly caused" standard was rejected by the court and replaced with that set forth in the Nissho Iwai decision; however, in view of the fact that there is no evidence that more than one sale for exportation occurred, the question of "which sale" should form the basis of transaction value is not at issue.

In this case, invoices establish that the seller is Rodenia Ltd, located in Hong Kong, and that the buyer is protestant, located in the United States. Whether the goods originate from Hong Kong, China, Macau, or another country does not affect the applicability of transaction value, nor does the fact that the imported merchandise is subject to an antidumping order preclude the use of transaction value as the means of appraisement.

In the context of filing an entry, Customs Form 7501 ("CF 7501"), an importer is required to make a value declaration. As indicated by the language of 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 the instant case, the invoice presented at the time of entry is from a Hong Kong company to the importer and reflects FOB Hong Kong prices. In accordance with the amounts reflected on the invoice and the above-noted presumption, the merchandise was appraised based on the price paid by the importer. We note, moreover, that protestant has not presented Customs with an alternative invoice or proposed any other transaction value than that at which the merchandise was appraised. Accordingly, we find that the merchandise was properly appraised using transaction value based on the price paid by the importer.

III. Extension of Liquidations

As for the contention that Customs extended the liquidation of the protested entries without authority of law and that Customs failed to issue notices of extension, the pertinent facts (based on "ACS entry archive" records) are described below: Ent. # Ent. Times Ext. Last Ext. Liq.
Date Ext'd Code Notice Date
Date

603 ** 3-2 09/13/89 3 01 06/20/92 08/20/93 603 ** 4-4 09/21/89 3 01 06/20/92 08/20/93 603 ** 3-8 10/31/89 3 01 06/20/92 08/20/93

Code 1, as a reason for extension of liquidation, at the time under consideration, meant that "information needed for the proper appraisement or classification of the merchandise is not available to the appropriate customs officer" (see 19 U.S.C. 1504(b)(3); 19 CFR 159.12(a)(1)(i); St. Paul Fire & Marine Ins. Co. [Carreon] v. United States, 16 CIT 663, 799 F. Supp. 120 (1992), reversed, 6 F. 3d 763 (Fed. Cir. 1993)).

As indicated in the table above, the merchandise under consideration was entered in September and October of 1989. According to documents in the file, the origin of the merchandise was claimed to be Macau. In October of 1989, following release of the merchandise, Customs sent Requests for Information (CF 28) to the protestant, asking for Certificates of Origin and the name of the manufacturer. By letter of October 17, 1989, the protestant sent Certificates of Origin for the merchandise, stating that the merchandise was "Made in Macau."

After a lengthy overseas investigation, Customs determined that the country of origin for the merchandise was the People's Republic of China (PRC). As such, the merchandise was subject to antidumping duties, under Antidumping Order A-570-504 (51 Fed. Reg. 30686; 55 Fed. Reg. 32279). The protestant was informed of this determination by a Notice of Action (CF 29) dated July 2, 1993.

As indicated above, after liquidation of the entries was extended three times, the entries were liquidated on August 20, 1993, less than four years after the date of entry. The entries were liquidated with antidumping duties of 54.21 percent, as provided in the Antidumping Order (see ruling HQ 225239 dated September 20, 1994, copy enclosed, for analysis of antidumping issues and of the applicability of Nunn Bush Shoe Co. v. United States, 16 CIT 45, 784 F. Supp. 892 (1992)). The protest under consideration was filed on September 17, 1993. Further review was requested and granted.

An affidavit, dated September 8, 1993, was filed with the protest. The affiant stated that he is the import manager of the protestant and is responsible for all importations of candles, including the entries covered by the protest. The affiant stated:

That at no time did [the protestant] receive from the U.S. Customs Service a Notice of Extension, CF 4333-a, extending the time for liquidation on these entries. There were no Notices received for the years 1990, 1991, 1992, or 1993.

Under 19 U.S.C. 1504, at the time under consideration, "[e]xcept as provided in subsection (b) of [section 1504], an entry of merchandise not liquidated within 1 year from ... the date of entry of such merchandise ... shall be deemed liquidated at the rate of duty, value, quantity, and amount of duties asserted at the time of entry by the importer of record." Under subsection (b), the period in which to liquidate an entry may be extended by giving notice of such extension to the importer of record in such form and manner as prescribed by regulations if, among other things, "information needed for the proper appraisement or classification of the merchandise is not available to the appropriate customs officer." Under subsection (d) of section 1504, "[a]ny entry of merchandise not liquidated at the expiration of four years from the applicable date specified in subsection (a) [of section 1504], shall be deemed liquidated at the rate of duty, value, quantity, and amount of duty asserted at the time of entry by the importer of record ...." The Customs Regulations issued under this statute are found in 19 CFR 159.12.

In this case, the reason given for the extension of liquidation was that information needed for the proper appraisement or classification of the merchandise was not available to the appropriate Customs officer. That information, according to the file, was the origin of the merchandise. Knowledge of the origin of the merchandise was necessary for the appraisement of the merchandise (i.e., because if the origin of the merchandise was Macau, no antidumping duties were due; if the origin of the merchandise was the PRC, antidumping duties were due).

In regard to this issue, see Detroit Zoological Society v. United States, 10 CIT 133, 630 F. Supp. 1350 (1980), and St. Paul Fire & Marine Insurance Co. [Carreon] v. United States, 6 F. 3d 763 (Fed. Cir. 1993). In the former case, the Court noted that it had "... limited authority to review Customs' decision to extend the period in which to liquidate entries" (Detroit Zoological, at 137). In the Carreon case, the Court noted, as did the Court in Detroit Zoological, that deference must be given to Customs determination that it needs additional information in order to liquidate an entry. The Court concluded that "Customs may ... employ up to four years to effect liquidation so long as the extensions it grants are not abusive of its discretionary authority [and] [s]uch an abuse of discretionary authority may arise only when an extension is granted even following elimination of all possible grounds for such an extension" (Carreon, at 768). The protestant has failed to meet its burden under these court cases and the protest is DENIED in regard to this issue.

In regard to the contention by the protestant that it did not receive the notices of extension for the protested entries. (see rulings HRL 224792 dated October 28, 1994 and 224397 dated March 8, 1994, and the Court decisions discussed therein). In this protest, Customs has evidence that notices of extension were properly issued to the protestant (i.e., the ACS record for each entry (see International Cargo & Surety Insurance Co. [Data Memory Corp.] v. United States, 15 CIT 541, 779 F. Supp. 174 (1991)) and a computer record of the extension/suspension history file (see Enron Oil Trading and Transportation Co. v. United States, 15 CIT 511 (1991), vacated 988 F. 2d 130 (Fed. Cir. 1993)). Under these cases and the Court decisions cited and analyzed in rulings HRL 224792 and 224397, the Customs evidence in this case establishes a presumption that proper notice was given.

The protestant attempts to rebut this presumption with the affidavit of a person stating that he is the import manager of the protestant and that at no time did the protestant receive from Customs a notice of extension for the protested entries. The sufficiency of evidence attempting to rebut the Government evidence in a case such as this is thoroughly analyzed in HRL's 224792 and 224397. The evidence in this case does not meet the standard established in the Court cases considered in those rulings. There is no description of the protestant's regular course of processing Customs-generated documents, including notices of extension. The affiant may or may not have been the responsible individual during the time under consideration, the affidavit makes no affirmative statement in this regard. There is no statement by any other employee of the protestant who may have handled the notices of extension. There is no description of the protestant's filing system for Customs documents (in this regard, a description of such a system and evidence showing receipt of other notices in the time period under consideration could be pertinent). There is no statement of whether the protestant even has files for extension notices and whether, if so, a search of those files was made.

Basically, the affidavit in this case consists of a statement of recollection (if the affiant was the responsible employee of the protestant at the time under consideration; otherwise the affidavit would consist of unidentified hearsay) of events which would have occurred years before the affidavit; a statement unsupported by any documents or records (see Andy Mohan, Inc. v. United States, 74 Cust. Ct. 105, C.D. 4593, 396 F. Supp. 1280 (1975), affirmed, 63 CCPA 104, C.A.D. 1173, 537 F. 2d 516 (1976), in the CCPA decision of which the Court noted that the affidavits there in question "... [were] entitled to little weight, being incomplete and based on unproduced records, and having been executed years after the transaction to which they attest" (at 63 CCPA 107)). (See also Arnold, Schwinn & Co. v. United States, 45 Cust. Ct. 156, C.D. 2217 (1960), in which the Court noted the improbability of non-delivery of 17 notices mailed on 4 different days over a 9-day period; in the protested case the protestant alleges non-delivery of 9 notices mailed on 3 different dates in 3 different years (in 1990, 1991, and 1992).)

HOLDING:

Based on the information presented, it is our opinion that the country of origin of the wax candles is China, and therefore, the candles are properly subject to antidumping duties. Moreover, we find that the merchandise was properly appraised using transaction value based on the price paid by the importer. Finally, we find no merit in protestant's arguments that the extensions of liquidation for the protested entries was contrary to 19 U.S.C. 1504 and that Customs never issued notices of extensions to the importer, so that the entries should have been "deemed" liquidated after one year. Accordingly, the protest should be denied in full.

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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