HQ 548574 - Internal Advice Request; Electrolux Home Products - United States International Trade Commision Rulings

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HQ 548574

March 17, 2005

RR:IT:VA 548574 EK

CATEGORY: VALUATION

Assistant Port Director
New Orleans, Louisiana 70139

RE: Internal Advice Request; Electrolux Home Products

Dear Port Director:

This is in reference to an internal advice request you forwarded to our office on July 27, 2004. Electrolux Home Products (Electrolux) is seeking internal advice regarding the proper valuation of certain merchandise imported on a consignment basis.

FACTS:

Electrolux, through counsel, indicates that two of its facilities are engaged in supplier-managed inventory transactions, i.e., the supplier delivers merchandise to Electrolux and the merchandise is imported by Electrolux, but is only sold to Electrolux on an as-needed basis. This results in payment for the merchandise being made after entry, and possibly at a price that does not reflect the invoice price presented upon entry of the merchandise. Although each facility is not obligated to purchase what has been delivered by the suppliers to the respective warehouses, as a practical matter, Electrolux indicates that it is unlikely that delivered merchandise would not be purchased.

Springfield Facility

Electrolux’s Springfield, Tennessee, facility imports oven grates from an unrelated supplier in China. The oven grates are shipped directly to a warehouse in the U.S., managed by a U.S. subsidiary of the supplier. The supplier has access to Electrolux’s demand flow website that allows the supplier to replenish the supply when it is low. The Springfield facility sends the supplier a release if there is an agreement on the number of grates to be shipped, and the facility withdraws grates from the U.S. subsidiary’s warehouse on an as-needed basis. Then the supplier in China is paid for the number of grates withdrawn from the warehouse. Payment is made on a bi-monthly basis according to the number of grates withdrawn in a certain period. Any grates withdrawn from the warehouse on the date of an invoice would be purchased at a price equal to that shown on the commercial invoice.

Kinston Facility

In the past, Electrolux’s Kinston facility located in North Carolina has imported various dishwasher parts on a consignment basis from unrelated suppliers in South Korea, Italy, Germany, Sweden and Canada. Currently, the Kinston facility receives valves only from an unrelated supplier in Korea on a consignment basis. This supplier has access to Electrolux’s demand flow website that allows the supplier to replenish when the supply is low. The valves are stored in a warehouse on the facility’s premises. In this instance, instead of paying for the valves based on the commercial invoice, the Kinston facility pays for the merchandise upon its withdrawal from the warehouse. Payment is made on a bi-monthly basis according to the number of valves withdrawn in a particular period. Any valves that are withdrawn on the date of an invoice would be purchased at a price equal to that shown on the commercial invoice.

In both instances, i.e., the Springfield and Kinston facilities, as a result of the time period that lapses between the date the merchandise is entered and the date it is withdrawn from the warehouse, you indicate that it is difficult to match the entered value for the merchandise on the CF 7501 against the actual amount paid by Electrolux to the suppliers for a particular shipment of merchandise. Although the CF 7501 is accompanied by a commercial invoice, the payment to the suppliers is not based on the invoice but rather, on the quantity of product used within a particular period of time and withdrawn from the warehouse. In addition, in attempting to match entries to payments, the quantities withdrawn in a particular period do not necessarily correspond to the quantities imported on a particular entry.

As an example, you indicate that there could be an entry for 1,000 units of a particular consigned part. In a given period, the parts imported on this entry may be withdrawn from the warehouse along with the same parts that were imported on a different entry. The parts from the earlier entry may reflect a different purchase price from that price recorded on the second entry. However, the price paid for these parts to the suppliers consumed in the given period will be the same, regardless of when the merchandise entered the United States and regardless of what price is shown on the respective invoices at the time of entry.

ISSUE:

How should the merchandise that is imported into the United States based on a consignment transaction be appraised?

LAW AND ANALYSIS:

The preferred method of appraising merchandise imported into the United States is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA). However, in order for transaction value to be applicable, there must be a “sale” for exportation to the United States. In this case, there is no “sale” of merchandise. Rather, the merchandise is entered into the United States pursuant to a consignment agreement. Transaction value is not applicable with respect to merchandise imported on consignment.

In addition, it does not appear as though section 402(c) of the TAA, transaction value of identical or similar merchandise, is available. As you indicate, you are unaware of any identical or similar sales in which transaction value has been applied, therefore, no information regarding transaction of identical or similar merchandise, section 402(c) is available.

Pursuant to the deductive value method of appraisement, merchandise is appraised on the basis of the price at which the merchandise is sold in the U.S. in its condition as imported and in the greatest aggregate quantity either at or about the time of importation, or before the close of the 90th day after the date of importation. 19 U.S.C. 1401a(d)(2)(A)(i)-(ii). This price is subject to certain enumerated deductions. 19 U.S.C. 1401a(d)(3). It does not appear as though deductive value applies either. You indicate that the Electrolux’s consigned merchandise is not always withdrawn within the 90-day period and that Electrolux is unable to connect the price on a specific entry to the price for the merchandise when it is withdrawn from the warehouse, thereby making deductive value inapplicable as well.

With respect to computed value pursuant to section 402(e) of the TAA, you state that you do not have the information necessary to calculate the material and processing costs incurred in producing the merchandise nor do you have access to figures regarding profit and general expenses. Computed value is not applicable in appraising the consigned merchandise.

The final method of valuation available is section 402(f) of the TAA, and states the following:

If the value of imported merchandise cannot be determined, or otherwise
used for the purposes of this Act, under subsections (b) through (e), the merchandise shall be appraised for purposes of this Act on the basis of a value that is derived from the methods set forth in such subsections, with such methods being reasonably adjusted to the extent necessary to arrive at a value.

You indicate that the consigned merchandise should be appraised pursuant to section 402(f) of the TAA, and utilize the most recent purchase order price that is being paid to the supplier as a modified transaction value. Essentially, you are requesting a section 402(f) appraisement based upon a commercial invoice for merchandise that enters on a specific date to be used with respect to merchandise that has been entered previously, and is now being withdrawn from the warehouse. You state that the commercial invoice price remains the most reasonable price for appraising the merchandise. The price paid to the supplier for the most recent warehouse withdrawal would most closely reflect the price paid or payable for the merchandise and, in most instances, be exactly the same as the purchase order price on any commercial invoice that is issued around the time of entry.

We agree with you that this is the most reasonable approach and method in appraising the consigned merchandise. As you indicate, Customs applied section 402(f) in HQ 548236 dated March 27, 2003. In that ruling, the merchandise was not sold for exportation to the United States. The importer did not take title to the merchandise until it withdrew the merchandise from a third party’s center for production replenishment (CPRs), and the merchandise was not paid for until it was withdrawn. Transaction value, transaction value of identical or similar merchandise, deductive value, nor computed value were available as means of appraisement. The invoice price was used to appraise the merchandise using section 402(f), i.e., the commercial invoice price represented a reasonably adjusted transaction value.

This factual situation is similar to that of HQ 548236 dated March 27, 2003. Thus, we agree with you that in this instance, section 402(f) of the TAA is appropriate as a method of appraisement, using the commercial invoice as a reasonably adjusted transaction value. The consigned merchandise is withdrawn from the respective warehouses within a relatively short time frame after entry such that most of the time, the price on the commercial invoice would be the same as the price paid upon withdrawal from warehouse. In addition, the unit price on the commercial invoice should match the unit price paid to the suppliers for the most recent withdrawal of the same merchandise from the warehouse. Finally, we note that you have stated that it is likely that if the price changes, it would result in an increase in duties.

Please note that 19 CFR § 177.9(b)(1) provides that each ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. This ruling is based on the presented facts. Electrolux has stated that the price contained in the commercial invoice in most instances is the same price paid for the merchandise when it is withdrawn from the warehouse and only on occasion is there a price change resulting in lower duties. If it occurs more than occasionally that the price paid on withdrawal from the warehouse changes from the price in the commercial invoice, then this ruling is not applicable in accordance with 19 CFR § 177.9(b)(1). Consequently, when the price paid on withdrawal from the warehouse changes from the price on the commercial invoice resulting in a decrease in duties, Electrolux should make Customs aware of this fact, so that Customs is able to verify that the price change indeed is only occurring occasionally.

HOLDING:

The consigned merchandise may be appraised pursuant to section 402(f) of the TAA, value if other values cannot be determined. The commercial invoices presented may be used as they represent a reasonably adjusted transaction value in a section 402(f) appraisement, TAA.

You are to mail this decision to the internal advice applicant no later than 60 days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Virginia L. Brown, Chief

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