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HQ 545815




April 28, 1995

VAL:R:C:V 545815 er
CATEGORY: VALUATION

District Director
1000 Second Avenue, Suite 2200
Seattle, Washington 98104-1049

RE: Application for Further of Protest 3001-94-100511; Appraisement; Classification.

Dear Sir:

This is in response to your memorandum accompanying the submission filed by protestant on August 19, 1994, concerning the above referenced matter. Your submission was received by this office on October 31, 1994. We regret the delay in responding.

FACTS:

Bionaire Inc. ("Inc.") is a Canadian company which manufactures and sells air purifiers and humidifiers. The purifiers are manufactured by Inc. in Canada and the humidifiers are manufactured by Raymond Industrial Limited ("Raymond") in China. The importer, Bionaire Corp. ("Corp."), is a United States subsidiary of Inc. Corp. purchases products from Inc. for resale in the U.S. Inc. also markets its products in Europe. The merchandise which is the subject of this protest was manufactured by Raymond in China.

According to the information in the file, Corp. places orders with Inc., which are filled and invoiced at transfer prices based on Inc.'s cost of acquisition plus a markup to cover general expenses and profit. Inc. places orders with the manufacturer. The merchandise is invoiced to Inc. for quantities in excess of the amounts purchased by Corp. Inc. invoices Corp. for the quantities purchased by Corp. In your opinion, the price from Inc. to Corp. represents the transaction value for the merchandise. Protestant claims that the price between Raymond and Inc. should form the basis of transaction value.

Copies of purchase orders from Inc. to Raymond, a bill of lading, a packing list, a Customs invoice, and an invoice from Raymond to Inc. were submitted.

A review of the file indicates that the entries subject to the protest were liquidated by Customs on May 13 and May 27, 1994. The protest was filed with Customs on August 19, 1994, as evidenced by the date stamp on the Customs Form 19. (The form was signed and dated by counsel for protestant on August 11, 1994). Thus, a total of 98 days had passed between the time of liquidation of the entries of May 13, 1994, and the time of the filing of the protest. Therefore, under 19 U.S.C. 1514(c)(2)(A), the protest concerning these entries was untimely filed and is not subject to review. This response, accordingly, addresses only those entries for which the protest was timely filed.

ISSUES:

What is the proper classification of household warm-mist humidifiers?

Whether the sale between Raymond and Inc., or the sale between Inc. and Corp. should form the basis of transaction value for the imported merchandise?

LAW AND ANALYSIS:

Classification

The portion of this response which pertains to the classification issue was separately prepared by the Metals and Machinery Branch of this office.

The humidifier was entered under subheading 8509.80.00, Harmonized Tariff Schedule of the United States ("HTSUS") which provides for electromechanical domestic appliances, with self-contained electric motor. It was classified upon liquidation under subheading 8516.79.00, HTSUS, which provides for other electrothermic domestic appliances. Protestant submits that the humidifier is classifiable under subheading 8479.89.10, HTSUS, which provides for electromechanical air humidifiers with self-contained electric motor, not specified or included elsewhere in the chapter.

The General Rules of Interpretation ("GRI's") to the HTSUS govern the classification of goods in the tariff schedule. GRI 1 states, in pertinent part, that "for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes . . . ." The Harmonized Commodity Description and Coding System Explanatory Notes ("EN") constitute the Customs Co-operation Council's official interpretation of the Harmonized System. While not legally binding, the Ens provide a commentary on the scope of each heading of the Harmonized System, and are generally indicative of the proper interpretation of these headings. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989).

EN 84.79, pg. 1314, states that heading 8479, HTSUS, is restricted to machinery that is "not covered more specifically by a heading in any other Chapter of the Nomenclature." Thus, if
the humidifier in question is covered by heading 8509 or 8516, HTSUS, it cannot be classified under heading 8479, HTSUS.

Note 3 to chapter 85, HTSUS, states that heading 8509, HTSUS, does not apply to the electrothermic appliances of heading 8516, HTSUS. Moreover, EN 85.09, pg. 1346, states that heading 8509, HTSUS, does not cover "[e]lectro-thermic domestic appliances (heading 85.16) [emphasis in original]." Therefore, if the humidifier is classifiable under heading 8516, HTSUS, it cannot be classified under heading 8509, HTSUS.

The term electrothermic, which is not defined in the HTSUS or the Ens, means "relating to or combining electricity and heat; specif: relating to the generation of heat by electricity." Webster's Ninth New Collegiate Dictionary, pg. 402 (1990). The warm-mist humidifier in question used electricity and heat to convert water into a warm mist to reduce dryness in the air. It is therefore an "electrothermic" appliance classifiable under heading 8516, HTSUS, specifically under subheading 8516.79.00, HTSUS.

Appraisement

The primary method of appraising imported merchandise is transaction value. 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 certain statutory additions, including selling commissions, described in section 402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 ("TAA"; 19 U.S.C. 1401a(b)(1)).

The "price actually paid or payable" is defined in section 402(b)(4)(a) as: "[t]he total payment made, (whether direct or indirect ...) or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller."

In Nissho Iwai American Corporation 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 context of filing an entry, Customs Form 7501 (CF 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.

Protestant has not provided any evidence that the merchandise is "clearly destined" for the United States at the time it is sold to Inc. The file contains no purchase orders from Corp. to Inc. and the purchase orders from Inc. to Raymond do not indicate for whom the merchandise is intended for resale. Moreover, the purchase orders are for a great deal more merchandise than what is sold by Inc. to Corp. Because Inc. also resells merchandise to countries other than the United States and because the purchase orders do not designate which of the items in the order are destined for the United States, we cannot conclude that a sale for exportation has occurred at the lower level. Accordingly, protestant has not overcome the presumption that transaction value should be based on the price paid by the importer to the middleman.

   In view of the fact that protestant has not proved that the goods involved were "clearly destined" for the United States at the time they were sold to Inc., we do not find it necessary to determine whether the sale was at "arm's length". Additionally, because you have not questioned whether the transaction between Inc. and Corp. is at "arm's length", we will assume, for purposes of this response, that any relationship between them does not negate the acceptability of transaction value

.

HOLDING:

Based on the foregoing, we find that the merchandise involved in the entries for which the protest was timely filed, was properly appraised and classified. You are hereby directed to deny the subject protest. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, this decision should be mailed by your office no later than 60 days from the date of this letter. Any reliquidation of the entries in accordance with the decision must be accomplished prior to mailing of 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,

John Durant, Director
Commercial Rulings Division

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