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HQ 546552

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January 13, 1998

RR:IT:VA 546552 er
CATEGORY: VALUATION

Brian S. Goldstein, Esq.
Tompkins & Davidson
One Astor Plaza
1515 Broadway
43rd Floor
New York, New York 10036-7900

RE: Request for Ruling regarding Appraisement of certain Research and Development Materials; Transaction Value; Related Parties.

Dear Mr. Goldstein:

This is in response to your submissions dated November 11, 1996 and May 30, 1997, in which you request a ruling on behalf of your client, Glaxo Wellcome Inc. (“Glaxo”), regarding the proper means of appraisement for certain research and development materials to be imported into the U.S. We regret the delay in responding.

FACTS:

Glaxo presently imports certain research and development materials which are transferred to them free of charge. The research materials include biological materials (e.g., blood, tissue, cell lines) and laboratory supplies in small quantities (e.g., a few empty plastic bottles, caps, milligrams of a chemical used at the laboratory bench). The development materials include chemical compounds in raw active form (powder) and in dosage form (tablets, injections, clinical trial materials and materials for stability studies).

Glaxo and its foreign suppliers are related parties within the meaning of 19 U.S.C. 1401a(g). Glaxo wants to restructure its current method of doing business so as to create a sale which may qualify for appraisement under transaction value.

It is anticipated that certain research and development materials will be sold to Glaxo at negotiated prices based upon the type or category of material, instead of being transferred to them free of charge. Other than a general statement that the pricing will be in accordance with industry norms, no specific pricing information has been provided to us. You have asked us to assume for purposes of this ruling that the prices have not been influenced by the relationship of the parties and that no statutory additions to invoice value are required to achieve dutiable transaction value.

Your client thus proposes negotiating prices with its foreign supplier, for the sale of the imported merchandise, such that appraisement under transaction value, 19 U.S.C. 1401a(b) would be available. You state that the items would be invoiced as a sale, recorded as a sale by the parties, title would pass and payment would be made at invoice unit prices

ISSUE:

Where a sale did not previously exist, can an importer restructure its method of transacting business so as to create a sale which may qualify for appraisement under transaction value?

LAW AND ANALYSIS:

Section 402(a) through (f) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. 1401a, provides the hierarchy of methods used when appraising imported merchandise. 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 certain enumerated additions. 19 U.S.C. 1401a(b)(1).

In this case, Glaxo proposes restructuring the importation process with its related supplier to create a sale of merchandise. The price for the imported merchandise is to be negotiated based on industry norms. From a legal standpoint, assuming a bona fide sale has occurred, there is no impediment to an importer restructuring its importation process for the express purpose of creating a sale of merchandise which may qualify for appraisement under transaction value. However, the related party prices must be acceptable within the meaning of the valuation statute.

19 U.S.C. 1401a(b)(2)(B) provides that the transaction value between related parties is acceptable if an examination of the circumstances of the sale of the imported merchandise indicates that the relationship between the buyer and seller does not influence the price actually paid or payable; or if the transaction value of the imported merchandise closely approximates certain test values, but only if the test values used for comparison purposes relate to merchandise that was exported to the U.S. at or about the same time as the imported merchandise in question.

As stated above, you have asked us to assume for purposes of this decision that the relationship between the parties did not influence the price based on industry norms. Because there is no information regarding the industry norm prices, we cannot hold that the negotiated prices are acceptable within the meaning of 19 U.S.C. 1401a(b)(2)(B). However, if the related party price is acceptable, the merchandise may be appraised under transaction value based on the invoiced amounts.

HOLDING:

Under the circumstances, if the related party pricing is acceptable, the merchandise may be appraised under transaction value.

Sincerely,

Acting Director
International Trade Compliance Division

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