HQ 546142 - AFR of Protest No. 4909-95-100081; bona fide sale; title and risk of loss; sale for exportation - United States International Trade Commision Rulings

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HQ 546142

November 29, 1996

VAL RR:IT:VA 546142 CRS

CATEGORY: VALUATION

Port Director
U.S. Customs Service
1 La Puntilla Street
San Juan, PR 00901

RE: AFR of Protest No. 4909-95-100081; bona fide sale; title and risk of loss; sale for exportation

Dear Sir:

This is in regard to an application for further review (AFR) of the above-referenced protest, dated July 6, 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, galvanized steel coil imported from South Africa. Counsel met with members of my staff to discuss this matter on June 13, 1996. An additional submission was made on November 21, 1996.

FACTS:

The subject merchandise, secondary quality steel coil, was imported by ISI, the importer of record, as agent for Wolff Steel Ltd., a U.K. corporation. The imported merchandise was sold to three different customers in Puerto Rico: Insular Wire Products, Servimetal Inc. and Platt Metal Products. The imported merchandise was appraised under transaction value on the basis of the price paid by the ultimate consignee, e.g., Servimetal. 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 the three ultimate consignees, Wolff and Vantin (Pty) Ltd., a South African seller. Counsel has advised that none of the parties to the transactions are related.

As a general matter, the transactions follow the following pattern. ISI, acting on behalf of Wolff, 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 offers product for sale. 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.

Documents have been submitted by the protestant to chronicle the protested transactions. The documentation consists generally of purchase orders, invoices, correspondence and proof of payment and includes, inter alia: a list, circulated by ISI to its customers via facsimile, which describes merchandise available from Vantin; copies of purchase orders which Wolff, acting on orders booked on its behalf by ISI, placed with Vantin for secondary quality steel coil, and Vantin's confirmation of Wolff's orders; ISI's confirmation, on behalf of Wolff, to the ultimate consignee; Vantin's invoice to Wolff and Wolff's invoice to the ultimate consignee; and proof of payment by Wolff's bank of the amount paid by Wolff to Vantin in respect of the invoices which are the subject of the protested entry.

The purchase order and the confirmation identify the ultimate consignee of the goods, as do the commercial invoices. The terms of the Vantin-Wolff sale were C&F, San Juan. The steel was marked and numbered by Vantin to indicate that it was destined for a particular ultimate consignee, e.g., Servimetal. In addition, counsel has advised that Wolff is responsible for insuring the goods during shipment.

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 (C.I.T. 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 (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. United States, 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, and HRL 545474, dated August 25, 1995.

In the instant case, the documentation indicates that the terms of the Vantin-Wolff transaction were C&F San Juan. Under these 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 at the time the goods passed the ship's rail at Durban. In this regard, counsel has advised that Wolff purchased insurance to cover the merchandise during the voyage to the U.S.

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. Based on the totality of the evidence submitted it is therefore our position that Wolff and Vantin functioned as buyer and seller and that the sale between Vantin and Wolff was a bona fide sale. See also HRL 546098 dated September 18, 1996.

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 in accordance with the standard established by the court in Nissho. It is the importer's responsibility to demonstrate that the standard set forth in Nissho has 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, the documentation submitted indicates that the steel coil was shipped by Vantin direct to the importer in the U.S. and, moreover, that the goods were at all times destined for ultimate consignees Insular Wire Products, Servimetal and Platt Metal Products. Furthermore, we understand that marks and numbers on the steel itself indicate that the coil was destined for a particular U.S. customer. 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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