HQ 546098 - AFR of Protest No. 0401-95-100571; sale; terms of sale; title and risk of loss; sale for exportation; Nissho Iwai - United States International Trade Commision Rulings

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HQ 546098

September 18, 1996

VAL RR:IT:VA 546098 CRS

CATEGORY: VALUATION

Port Director
U.S. Customs Service
135 High Street
Hartford, CT 06103

RE: AFR of Protest No. 0401-95-100571; sale; terms of sale; title and risk of loss; sale for exportation; Nissho Iwai

Dear Sir:

This is in regard to an application for further review (AFR) of the above-referenced protest, dated July 19, 1995, forwarded by your office in accordance with 19 C.F.R. ? 174.26. The AFR was filed by counsel Meeks & Sheppard on behalf of protestant International Steels, Inc. (ISI), regarding the appraisement of secondary quality, hot rolled, pickled and oiled steel coil imported from South Africa. Counsel submitted additional information under cover of a letter dated December 6, 1995. Subsequently, counsel discussed this matter with members of my staff at a meeting held at Customs Headquarters, Franklin Court, on June 13, 1996.

FACTS:

The subject merchandise, secondary quality steel coil, was imported by ISI, the importer of record, as agent for Wolff Steel Ltd. (Wolff), a U.K. corporation. The ultimate consignee was Midland Steel Warehouse Corp. (Midland), of New York City. The merchandise was appraised under transaction value on the basis of the price paid by Midland. However, protestant ISI contends that the merchandise should be appraised on the basis of the price paid by Wolff pursuant to a three-tiered transaction involving Midland, Wolff and Vantin (Pty) Ltd., a South African seller. Counsel has advised that none of the parties to this transaction are related.

In support of its claim, protestant ISI has submitted copies of the following documents: commercial invoices from Vantin to Wolff and from Wolff to Midland; a purchase contract between Wolff and Midland; a purchase order from Wolff to Vantin; copies of letters from both Wolff and ISI to Midland; a certificate of insurance; bills of lading and other shipping documentation; proof of Wolff's payment to Vantin; and product lists prepared by Vantin.

Counsel advises that ISI, Wolff's U.S. agent for the northeastern U.S. and Puerto Rico, receives periodic listings from Vantin of secondary quality steel coil available for export. These listings do not include prices but Wolff generally is aware of the prices at which Vantin is willing to sell. When ISI receives the listings, it reviews them to determine whether there are any secondary quality steel products which might be of interest to customers in its area. If so, ISI contacts the customer and quotes a price and an approximate shipment date. Counsel states that Wolff's price, as quoted by ISI, is based on the original Vantin price, plus duties, estimated costs incurred, such as bank charges, credit insurance and brokerage fees, and profit. ISI is paid a commission for its role in the transaction.

The documentation submitted in respect of the AFR shows that on October 10, 1994, ISI, acting on behalf of Wolff, sent Midland a copy of Vantin's list of secondary steel products available for export. Midland placed an order on October 11, 1994, and on November 1, 1994, ISI confirmed Midland's order. The confirmation quoted the price of the goods but advised that certain items were unavailable and that, consequently, the entire order could not be filled. Pursuant to Wolff's purchase contract with Midland, dated November 4, 1994, the terms of the sale were C.I.F. duty paid, New Haven, with payment terms of thirty days net from release of cargo.

Wolff's purchase order to Vantin, also dated November 4, 1994, quotes terms of sale of C&F New Haven, with payment terms of cash against documents. Vantin's invoice to Wolff, dated November 21, 1994, repeats these terms and, in addition, states that insurance is to be effected by the buyer of the goods. Similarly, the commercial invoice from Wolff to Midland, dated November 21, 1994, repeats the C.I.F. duty paid terms of the Wolff-Midland purchase contract.

The documentation relating to the Vantin-Wolff sale, namely, the bill of lading and the commercial invoice indicate that Midland is the ultimate consignee. In addition, an export permit indicates that the merchandise is destined for the U.S. Furthermore, the steel coil itself is marked and numbered to indicate that it is destined for Midland.

ISSUE:

The issues presented are whether there was a bona fide sale between Vantin and Wolff for purposes of determining the transaction value of the imported merchandise and, if so, whether that sale constituted a sale for exportation to the United States.

LAW AND ANALYSIS

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 the merchandise when sold for exportation to the United States" plus, to the extent applicable, certain enumerated additions thereto. 19 U.S.C. ? 1401a(b)(1). However, transaction value is an acceptable basis of appraisement only if, inter alia, the buyer and seller are not related, or if related, the relationship did not influence the price actually paid or payable, or the transaction value approximates certain "test" values. 19 U.S.C. ? 1401a(b)(2)(B). None of the parties to the instant transaction are related.

Counsel for ISI contends that the imported merchandise should be appraised on the basis of Vantin's price to Wolff. In support of this position counsel cites Nissho Iwai American Corp. v. United States, 786 F. Supp. 1002 (Ct. Int'l Trade 1992), rev'd in part, aff'd in part, 982 F.2d 505 (Fed. Cir. 1992). In Nissho, 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 reaffirmed the principle of 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. Nissho Iwai, 982 F.2d 505, 511. 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. 18, Slip Op. 93-5 (Ct. Int'l. Trade January 12, 1993).

However, in order for Nissho to apply there must first exist two statutorily viable sales. Customs recognizes that the term "sale," as articulated in J.L. Wood v. U.S., 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974), means the transfer of property from one party to another for a consideration. In determining whether a bona fide sale has taken place between a potential buyer and seller of imported merchandise, no single factor is determinative. Instead, Customs reviews all the facts and circumstances present and makes each determination on a case-by-case basis. Dorf International, Inc. v. United States, 61 Cust. Ct. 604, A.R.D. 245 (1968).

Several factors may indicate the existence of a bona fide sale. In making its determination, Customs considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, Customs may examine whether the potential buyer paid for the goods, and whether, in general, the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as buyer and seller. E.g., Headquarters Ruling Letter (HRL) 545709, dated May 12, 1995, HRL 545474, dated August 25, 1995.

In the instant case, the documentation indicates that the terms of the Vantin-Wolff transaction were C&F New Haven, while those governing the Wolff-Midland transaction were C.I.F. duty paid, New Haven. Under C&F (CFR) terms, it is the buyer who bears the risk of loss or damage from the time the goods pass the ship's rail at the port of shipment, in this case, Durban, South Africa. International Chamber of Commerce, Incoterms 1990, 44-48. Thus, under the terms of sale governing the transaction at issue, Wolff assumed the risk of loss from the time the goods passed the ship's rail at Durban until they were delivered in New Haven. Accordingly, Wolff insured the goods during their shipment from Durban to New Haven.

As noted above, Customs may also examine other factors, such as whether the alleged buyer paid for the goods, whether the payments were linked to specific importations of merchandise, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties functioned as buyer and seller. The documents described above pertaining to the subject transactions support counsel's contention that the parties functioned as buyer and seller. Also, counsel for ISI has submitted proof that Wolff paid Vantin for the imported steel coil. Based on the totality of the evidence submitted it is our position that Wolff and Vantin functioned as buyer and seller and that the sale between Vantin and Wolff was a bona fide sale.

In order for this sale to be considered a sale for exportation to the United States for purposes of determining transaction value, however, the imported merchandise must have been clearly destined for export to the United States and the manufacturer and the middleman must have dealt with each other at arm's length. Nissho, 982 F.2d 509. It is the importer's responsibility to demonstrate that these conditions have been met. E.g., HRL 545144 dated January 9, 1994; HRL 545714 dated November 9, 1994.

Since none of the parties are related in this instance, the only issue to resolve is whether the secondary steel coil was clearly destined for export to the U.S. at the time of the Vantin-Wolff sale. In respect of the clearly destined standard, counsel has provided copies of purchase orders, commercial invoices, correspondence and other related documents. The documentation indicates that the steel coil was shipped by Vantin direct to the importer in the U.S. In addition, the export certificate prepared by Vantin indicates that the goods were at all times destined for Midland. Furthermore, marks and numbers on the steel itself show that the coil was for Midland. Accordingly, based on the evidence presented, it is our position that the steel coil was clearly destined for exportation to the U.S.

HOLDING:

The protest should be allowed in full. The Vantin-Wolff sale constituted both a bona fide sale and a sale for exportation to the U.S. for purposes of determining transaction value. In conformity with the foregoing, the imported merchandise should be appraised under transaction value on the basis of the price actually paid or payable by Wolff to Vantin.

In accordance with section 3A of Customs Directive 099 3550-065, dated August 4, 1993, this decision should be mailed by your office to the protestant no later than sixty days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to mailing the decision to the protestant. Sixty days from the date of this letter 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, the Freedom of Information Act and other public access channels.

Sincerely,

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