HQ 547458 - Application for Further Review of Protest 1303-99-100146; transaction value of imported merchandise; sale for exportation; bona fide arm's length sale; a sale for export to the United States; sufficiency of evidence - United States International Trade Commision Rulings

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HQ 547458

June 19, 2001

VAL R:IT:V 547458 MMC

CATEGORY: VALUATION

Port Director
U.S. Customs Service

40 S. Gay Street

Baltimore, Maryland 21202

RE: Application for Further Review of Protest 1303-99-100146; transaction value of imported merchandise; sale for exportation; bona fide arm's length sale; a sale for export to the United States; sufficiency of evidence

Dear Port Director:

This is in reference to Application for Further Review of Protest 1303-99-100146 concerning the proper transaction value, §402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. §1401a(b)), of a mono polar electrolzyer. A copy of an application for further review of a protest [CF 19] was forwarded to our office for review.

The copy of the CF 19 is not signed by any port official nor is it indicated that the application for further review was approved. No official date of receipt appears on the forwarded copy. A handwritten date of June 6, 1999, has been placed in the “date received” box.

FACTS:

The documents submitted do not contain an explanation of the facts. The documents submitted appear to indicate that[ Kvaerner Chemetics], middleman and importer of record, [Kvaerner] is a Canadian engineering company that develops and installs engineered systems. Apparently, Kuehne Chemical Company,[Kuehne] the U.S. purchaser, contracted with the middleman/importer to supply a complete chlorine plant. The middleman/importer then contracted with a vendor,[ ICI Chemicals & Polymers Limited] to supply the various components of the plant. Those various components were imported in a number of shipments. The Customs’ Entry Summary [CF 7501] indicates that the middleman/importer and U.S. purchaser are related.

The merchandise subject to this entry is a mono polar electrolzyer. The middleman/importer states in its submission that based upon verbal advice received
from an import specialist in the port of Blaine, Washington, the middleman/importer entered the merchandise using transaction value based upon the total contract price between the middleman and U.S. purchaser, plus architectural design and art work required to erect the facility in the United States, plus the normal profit and expense margin utilized by the middleman/importer.

The middleman/importer now contends that the transaction value should be based on an alleged sale between itself and the vendor. Additionally, the middleman/importer alleges that certain transportation and insurance costs pertaining to the international movement of the merchandise from the country of exportation should not have been included in the transaction value of the merchandise. Finally, the middleman/importer alleges the design and artwork was performed for the plant as a whole and not the imported merchandise and as such an addition for their costs should not have been made.

In support of its claim that transaction value should be based upon the sale between itself and the vendor, the middleman/importer provided the following documents:

A ‘purchase order detail report” detailing all costs it associates with the entry of the mono polar electrozlyser. On the first sheet these costs include spare parts and paid royalty and licensing fees. While engineering design costs are indicated, the middleman/importer’s calculation does not account for them. The heading on the document indicates the “vendor” as [ICI]. The middleman/importer indicates that the assigned job number, 95C41800, is for the entire plant and that 95C41800-001 is for the mono polar electrolyzers. The second and third sheets of the purchase order detail report break down the royalty and licensing fees. The fourth sheet further details the costs of materials supplied on an invoice by invoice basis. Invoice numbers are listed but no invoices were provided.

A declaration made by the middleman/importer’s Director of Projects and Mechanical Engineering stating that there was “no engineering assists necessary in the purchase of the electrolyers.”

A pro forma invoice from the middleman/importer to the U.S. purchaser. The invoice indicates its for “50 tons/Day Chlorine Plant”, that CIF are the shipping terms and itemizes 7 costs. Those costs include the electrolyzer, working spares, electrolyzer assembly frame, electrolyzer assembly tools, royalty fees and “freight & handling”. Additionally, the following 2 statements appear on the invoice. “[t]his equipment is part of one complete Chlorine Plant (partial shipment). [t]he above pro forma is for customs purposes only and is non-negotiable.”

A file copy of an invoice referencing the job number for the Chlorine Plant and the mono polar electrolyzer, containing ocean freight, foreign in-land freight, U.S. terminal charges, container charges and handling & documentation fees.

A bill of lading indicating the middleman/importer, care of Rhode & Liesenfeld, Ltd. as shippers/exporters and the middleman/importer, care of the U.S. purchaser as ultimate consignee. The party to notify is Rohde & Liesenfeld. The bill of lading indicates that the merchandise was shipped from Felixtowne, GB to Baltimore MD by sea. Freight was prepaid.

An insurance certificate indicating that middleman/importer’s agent, on its behalf, took an insurance policy for the conveyance identified on the bill of lading. The cost of that insurance policy was not indicated on the document.

Four bank debits issued to the middleman/importer by the vendor. The “debits” identify the middleman/importer as both consignee and “invoicee”. Each identifies the same number that appears on the pro forma invoice as the “customer reference number” and on the purchase order detail report as s the “purchase order number” as the “customer reference number”. The first and second debits contain the statement, “to charge for 15% of hardware of FM1500 electrolysers for [Kuehne] Project USA upon despatch of documentation.” The third contains the following statement “to charge for 65% of hardware of FM21 electrolzyser supplied on 1st April ex works delivery for export for [Kuehne] Project Delaware USA third stage payment as per your order.” The fourth contains a similar statement except the “stage” [four] is different. The middleman/importer’s requests to its bank for payment to the vendor are also attached.

No documents, other than the pro forma invoice, concerning the transaction between the middleman/importer and U.S. purchaser, such as a purchase order, contract, agreements etc., were provided.

In an undated Customs Protest and Summons Information Report, [6445A] the import specialist indicates her belief that the middleman/importer has made its case, pursuant to the Nissho Iwai case that appraisement of the merchandise should be based upon the transaction value between the middleman/importer and vendor. However the import specialist believes that the middleman/importer has not made a case for the exclusion of the artwork and design from the proposed transaction value. No comment was made concerning the transportation and insurance costs claim.

ISSUES:

Whether the evidence submitted establishes that transaction value should be based upon the transaction between the middleman/importer and vendor.

2. Whether sufficient evidence was provided to find that design and artwork was performed for the plant as a whole and not the imported merchandise such that an addition for their costs to the price actually paid or payable should not have been made.

LAW AND ANALYSIS:

Merchandise imported into the United States is appraised in accordance with §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 under the TAA is transaction value, defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus five enumerated additions, including any selling commission incurred by the buyer with respect to the imported merchandise.

§402(b)(4)(A) of the TAA provides that the term "price actually paid or payable" means:
the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

In the context of filing an entry, Customs Form 7501, an importer is required to make a value declaration. As indicted by the language of CF 7501 and the language of the valuation statute, there is a presumption that transaction value is based on the price paid by the importer.

A review of the evidence forwarded to us from the port, leads to the conclusion that transaction value should be based on the price paid by the middleman/importer. The companies are not related and therefore the transaction was arm’s length. A “purchase order detail report” created by the middleman/importer detailing the components for the plant and identifying the vendor together with proof of payment between the two companies indicate that a bona fide sale took place. Additionally, the middleman/importer is identified on the bill of lading as the “shipper” and took out an insurance policy on the goods which indicates that the middleman/importer takes title to and risk of loss for the goods. Furthermore the bill of lading together with the file copy invoice for transportation designates the materials as destined to the port of Baltimore. As such they were clearly destined for the United States.

Finally, the middleman/importer asserts that design and artwork was performed for the plant as a whole and not the imported merchandise and as such an addition for their costs to the price actually paid or payable should not be made. The only documentation provided in support of the claim is a declaration made by his own Director of Projects and Mechanical Engineering. The disclaimer states that there was “no engineering assists necessary in the purchase of the electrolyers.” We do not find this evidence compelling. Without other independent evidence such as a purchase agreement, etc. this statement does not establish that Customs addition of the design and artwork was incorrect.

HOLDING:

Based on the evidence presented, the price between the vendor and the middleman/importer constitutes the price actually paid or payable for purposes of determining the transaction value of the mono polar electrolzyer. Sufficient evidence was not provided to indicate that design and artwork identified on the purchase order report do not constitute an addition to the price actually paid or payable. As such, they should be included in the transaction value of the imported merchandise.

The protest should be GRANTED IN PART AND DENIED IN PART. The protest should be granted on the issue of whether transaction value should be based on the price paid by the importer. It should be denied for a lack of evidence on the issue of whether the costs associated with design and artwork should be added to the price actually paid or payable.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993, Subject: Revised Protest Directive, this decision, together with the Customs Form 19, 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 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,

Virginia L. Brown, Chief

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