HQ 545360 - Proper Transaction Value of Imported Merchandise; Sale for Exportation. - United States International Trade Commision Rulings

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HQ 545360

May 31, 1994

VAL CO:R:C:V 545360 er

CATEGORY: VALUATION

Joel K. Simon, Esq.
Serko & Simon
One World Trade Center
Suite 3374
New York, NY 10048

RE: Proper Transaction Value of Imported Merchandise; Sale for Exportation.

Dear Mr. Simon:

This is in response to your submissions dated June 21, 1993 and March 2, 1994, in which you request a ruling with regard to the dutiable value of merchandise imported by your client Accessory Network Group ("ANG"). We regret the delay in responding.

FACTS:

You state that your client is an importer and distributor of fashion accessories. Most of the items are manufactured in China and other countries in the far east. The importer proposes to place its orders for merchandise through a middleman in Hong Kong. The middleman in turn will locate sources of supply, order the merchandise, and make the purchases in the name of the middleman. The middleman will sell the merchandise to the importer on an FOB Hong Kong basis at a price that is greater than the price that the middleman buys from the manufacturers, and its price to the importer will include the middleman's markup for general expenses and profit. You state that the middleman will notify the manufacturers that the merchandise will be destined for the United States. The middleman will also supply to the importer, copies of the original invoices from the manufacturers to evidence the purchase price of the merchandise for export to the United States. Copies of such invoices and of the required visaed invoices were submitted with the ruling request. Neither the middleman nor the importer is related to the manufacturers of the merchandise and you state that all purchases by the middleman from the manufacturers will be at arm's length. An affidavit to this effect was submitted.

It is your belief that the proper basis of appraisement for this merchandise should be the transaction value, based upon the sales price from the manufacturers to the middleman.

ISSUE:

Whether the transaction between the middleman and the manufacturer or the transaction between the middleman and the importer determines the "price actually paid or payable" for the merchandise when sold for exportation.

LAW AND ANALYSIS:

Section 402(b)(1) of the TAA 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."

In Nissho Iwai American Corp. v. United States, No. 92-1239, slip op. (Fed. Cir. Dec. 28, 1992) and Synergy Sport International, Ltd. v. United States, No. 93-5, slip op. (CIT Jan. 12, 1993), the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed the proper dutiable value of merchandise imported pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman and a United States purchaser. In both cases the middleman was the importer of record. In each case the court held that the price paid by the middleman/importer was the proper basis for transaction value. Each court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm's length, free from any nonmarket influences and involving goods clearly destined for the United States.

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

In accordance with the Nissho Iwai and Synergy decisions and our own precedent, we will continue to presume that an importer's declared transaction value is based on the price the importer paid. Also see, HRL 545144 (January 19, 1994). In further keeping with the courts' holdings, we note that in those situations where an importer requests appraisement based on the price paid by the middleman to the foreign manufacturer (and the importer is not the middleman), the importer may do so. However, it will be the importer's responsibility to show that such price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must present sufficient evidence that the sale was an "arm's length sale," and that it was "a sale for export to the United States," within the meaning of 19 U.S.C. 1401a(b).

In this case, counsel for the importer requests that the transaction value be based on the price that the middleman pays to the manufacturer, rather than on the price that the importer pays to the middleman. In that regard, we note that counsel has declared that neither ANG nor the middleman is "related" to any of the manufacturers, as that term is defined within 19 U.S.C. 1401a(g). An affidavit to this effect was submitted as additional evidence. Therefore, we will assume that the sales between the middleman and the manufacturers are at "arm's length" and that the first requirement set forth in Nissho Iwai has been met.

In the event that merchandise is subject to visa requirements, as in the instant case, Customs would require copies of the visaed invoices covering the merchandise for exportation to the United States. These visaed invoices would be evidence that the merchandise is destined for the United States. In accordance with this requirement, ANG submitted copies of regular invoices and original visaed invoices. Therefore, we find that the second requirement set forth in Nissho Iwai has been met and that the prices paid by the middleman to the manufacturers may serve as the bases for transaction value for the subject imported merchandise.

We note that our decision in this case is based on the specific facts submitted. If, at any time, the sales between the middleman and any of its suppliers are no longer ar arm's length or if the middleman expands its market beyond the United States, our reasoning as set forth above would no longer apply.

HOLDING:

Because sufficient evidence was submitted to demonstrate that (1) the sale was "at arm's length", and (2) at the time the middleman purchased, or contracted to purchase, the imported goods, they were "clearly destined for the United States", the transaction value of the imported merchandise may be based upon the sale for exportation between the Hong Kong middleman and the manufacturer.

Sincerely,

John Durant, Director

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