HQ 547798 - Sale for export; transaction value; transfer of title; retroactive price adjustments; VWP of America, Inc. v. United States; J.L. Wood v. United States; HQ 544314 - United States International Trade Commision Rulings

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HQ 547798

August 23, 2000

RR:IT:VA 547798 KDW

CATEGORY: VALUATION

David R. Ostheimer
Marshall V. Miller
Miller & Company
51st Floor, 233 Broadway
New York, New York 10279

RE: Sale for export; transaction value; transfer of title; retroactive price adjustments; VWP of America, Inc. v. United States; J.L. Wood v. United States; HQ 544314

Dear Mr. Ostheimer and Mr. Miller:

This is in response to your letter dated August 9, 2000, filed on behalf of [*******] Inc., concerning the appraisement of computer, electronic, and telecommunication products imported into the United States and delivered directly to a Center for Production Replenishment (CPR). In addition, we have reviewed your request for confidentiality pursuant to section 177.2(b)(7) of the Customs Regulations chapter 19, with respect to certain information submitted. Accordingly, that information has been bracketed and will be deleted from any published versions.

FACTS:

[*******], Inc. issues purchase orders to its foreign suppliers for products projected for use by its domestic manufacturing facilities. The price between [*******], Inc. and its foreign suppliers is agreed upon at the time the shipments are exported to the United States. [*******] acts as the importer of record for Customs entry purposes paying all duties and fees, and the merchandise is delivered into Centers for Production Replenishment (CPR), a warehouse supplier. Although [*******] is the importer of record, by contract, the risk of loss remains with the exporter, and payment is not due to the exporter until the merchandise is withdrawn from the CPR. The purpose of this arrangement is that it allows [*******] to access products quickly while limiting the inventory on its books. In addition, should the market price for the products drop prior to withdrawal from the CPR, the price paid to the foreign seller is adjusted. The market price is generally the same as the price at the time of shipment but sometimes it is lower depending upon the market demands. We do not address retroactive price increases here, since you state such instances are rare and unanticipated. [*******] states that the CPR helps insulate the company from the adverse financial effects of continuing declines in component prices that commonly occur in the computer industry. [*******] claims that this adjustment in price takes place after importation and entry. In addition, counsel for [*******] explained that the company is not related to its foreign sellers or the CPRs.

Issue:

Under the circumstances presented, is transaction value applicable?

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 is transaction value, which is defined in §402(b) of the TAA as the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus certain statutorily enumerated additions. The term “price actually paid or payable” is more specifically defined in §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.”

Reductions in the price actually paid or payable arrived at subsequent to the time of importation shall not be taken into account in determining transaction value. State of Administrative Action (“SAA”), H.R. Doc. No. 153, (96 Cong., 1st Sess., pt. 2 (1979)) reprinted in Department of the Treasury, Customs Valuation under the Trade Agreements Act of 1979 at 46, (October 1981). Accordingly, any reductions in the price actually paid or payable by [*******] to its foreign sellers after importation shall not be taken into account in determining transaction value.

Thus we reach the central question in this case, whether a sale for exportation to the United States occurs. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the Court of Appeals for the Federal Circuit found that the term “sold” for purposes of 19 U.S.C. §1401a(b)(1) means a transfer of title from one party to another for consideration. The information submitted indicates that the foreign seller transfers title to [*******] upon removal of products from the CPRs. However, prior to importation, [*******] promises to pay the selling price. Although acceptance and final payment are contingent upon removal from the CPRs, there is a transfer of property for consideration. Consideration consists of the mutual promises to sell and to purchase. Every requirement for a sale, as defined by VWP (citing J.L. Wood v. United States, 505 F.2d 1400 (CCPA 1974)) is present in the transactions proposed by [*******].

However, under §1401a(b)(1), not only must a transaction constitute a sale, it must be a sale “for exportation to the United States.” This inquiry is a fact-specific one, and is determined on a case-by-case basis.

[*******] submits a purchase order to the foreign suppliers, and the prices for the products are fixed prior to exportation. The products are then exported to the United States with [*******] acting as the importer of record, paying all fees, duties and taxes upon entry into the customs’ territory. Consequently, the merchandise is exported to the Untied States according to the contract of sale between [*******] and the foreign supplier. However, [*******] does not take title and possession of the merchandise or make final payment until it is removed from the CPRs. The price therefore, is payable to the seller at time of export, but not paid. The payment and transfer of title are conditioned on the removal from the CPR.

In Headquarters Ruling Letter (HRL) 544314 we explained that the mere fact, that title passes to the U.S. purchaser after importation, is not enough to disqualify a sale from being a sale for exportation for Customs’ purposes. (See also, TAA #59) We found that transaction value was the appropriate basis of appraisement because at the time the merchandise was exported there was an agreement to purchase. In that case, we stated that although, acceptance and final payment were contingent upon assembly in the U.S., there was a transfer of property for consideration. Thus, although [*******] does not take title to the merchandise or make payment at the time of import, we find that the sales between [*******] and its foreign suppliers are sales for exportation to the United States within the meaning of §1401a(b)(1).

HOLDING:

The sales between [*******] and its foreign suppliers are sales for exportation within the meaning of §1401a(b)(1) permitting the use of transaction value. The retroactive price reductions between unrelated parties, after importation, are not taken into account in determining transaction value.

Sincerely,

Thomas L. Lobred
Chief, Value Branch

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