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HQ 546427

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December 19, 1996

RR:IT:VA 546427 er
CATEGORY: VALUATION

Port Director
U.S. Customs Service
Buffalo, NY

RE: Request for Internal Advice 24/96; Women's Wearing Apparel; Transaction Value; Sale for Exportation.

Dear Port Director:

This is in response to your request for internal advice dated June 19, 1996, and the memorandum from the Chief, Wearing Apparel Branch, National Commodity Specialist Division, dated September 26, 1996, concerning the same, which address the appraisement of women's wearing apparel exported from Germany by Wolff & Olsen. We regret the delay in responding.

FACTS:

You state that Wolff & Olsen exports women's wearing apparel to both the United States and Canada. The Canadian company, Olsen European Fashions ("Olsen Canada") and the United States company, Olsen European Fashions, NY ("Olsen NY"), are related firms. At the present time there is no indication whether Wolff & Olsen and the importer are also related.

You state that it is the importer's contention that the goods at issue are sold for exportation to the United States and are destined for the United States market at the time they are exported from Germany. All goods, both those intended for the United States market and those intended for the Canadian market, are shipped to Canada. In Canada, the goods are placed in a bonded warehouse, and a quality control inspection is performed. Any goods intended for the United States which are of inferior quality are either entered into the commerce of Canada, where an attempt is made to sell them, or they are returned to Germany, and the account of the United States importer is credited.

ISSUE:

Whether the transactions between Wolff & Olsen and Olsen NY involve goods which are destined for the United States such that a sale for exportation exists and appraisement should proceed under transaction value?

LAW AND ANALYSIS:

Section 402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreement Act of 1979 (TAA; 19 U.S.C. 1401a) provides, in pertinent part, that the transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States", plus enumerated additions. The "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as the "total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise...) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of the seller."

As stated in the facts, it is not known whether Wolff & Olsen and Olsen NY are related parties and whether, if they are, the price between these parties could form the basis of transaction value under the tests set forth under section 402(b)(1)(B) of the TAA. According to you, this matter is presently being reviewed by your office. However, even if you do determine that the price negotiated between the parties is not influenced by their relationship, we must first determine whether the the transaction is a sale for exportation to the United States.

Merchandise must be destined for export to the United States at the time of the sale for it to be considered to be sold for exportation. See, HRLs 544973 dated January 11, 1993 and 542310 dated May 22, 1981. As described above, you state that the importer contends that the goods should be appraised under transaction value, because at the time they are sold to Olsen NY, they are destined for the United States market. You are concerned because the seller also sells to Olsen Canada, and shipments intended for both the Canadian and the United States market arrive in a bonded warehouse in Canada. In Canada, goods intended for the United States market which do not meet the quality standards, are either diverted into the Canadian commerce and are sold or else they are returned to Germany for a credit.

In HRL 545254 dated November 22, 1994, Customs ruled that a sale between a foreign company and a United States company which included an intermediate shipment through a Canadian bonded warehouse operation was found to be a sale for exportation to the United States, and transaction value was determined to be the proper method of appraisement. Hence, the fact that the goods in the subject transactions are first shipped to Canada and placed in a bonded warehouse, does not preclude the use of transaction value. The critical difference between the facts at hand and those in HRL 545254, is that in HRL 545254, no contingency of diversion existed with regard to an alternative disposition of the goods. Namely, merchandise that did not meet the quality standards was not sold in Canada; instead it was removed from the bonded warehouse and was returned to the exporter.

In this respect, the facts in the instant matter are similar to those in HRL 546069 dated August 1, 1996, where Customs found transaction value inapplicable as a means of appraisement. There, cheese intended for the United States market was first shipped through Holland and was placed in a bonded warehouse for inspection to ensure the cheese met contract specifications. If the cheese did not meet specifications, it could be sold in the European market. Given those facts Customs found that the evidence submitted did not establish that the cheese was destined for the United States market at the time of exportation. Similarly, in the instant matter, the fact that some or all of the shipment could be sold in Canada creates a contingency of diversion. We, accordingly, find that the merchandise at issue was not sold for exportation to the United States. Under these circumstances, even if your office concludes that the prices negotiated between Wolff & Olsen and Olsen NY are not influenced by their relationship, the goods may not be appraised under transaction value.

In instances where transaction value cannot be determined, or cannot be used, sections 402(a)(B) and (C) of the TAA provide for appraisement under section 402(c) -- transaction value of identical or of similar merchandise. (The terms "identical merchandise" and "similar merchandise" are defined in sections 402(h)(2) and 402(h)(4), respectively.) This means of appraisement is acceptable provided sufficient information is available in order for Customs to make any adjustment that may be necessary under section 402(c)(2). No specific information pertaining to section 402(c) has been submitted to Headquarters. If in fact a section 402(c) appraisement is possible, this means of appraisement may not be disregarded by either Customs or the importer. (HRL 543912 dated April 19, 1988).

So long as transaction value of identical or similar merchandise is not available, then appraisement under deductive value is appropriate provided the statutory requirements of section 402(d) are met and that the necessary documentation and information is obtainable. In the event a section 402(d) appraisement is not possible, then appraisement should proceed under computed value as defined by section 402(e) provided the statutory requirements of this section are satisfied. Only if none of the above methods of appraisement is possible, may you appraise the merchandise in accordance with section 402(f).

HOLDING:

Based on the information submitted, we find that the goods were not sold for exportation to the United States and, hence, that transaction value does not exist. Under these circumstances, the merchandise must be appraised in accordance with the hierarchal means of appraisement set forth under section 402 of the TAA, as discussed above.

The Office of Regulations and Rulings will take steps to make this 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 60 days from the date of this decision.

Sincerely,

Acting Director, International
Trade Compliance Division

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