HQ H004683 - Transaction value; charges incident to the international shipment; fuel surcharge; security charge; handling fee. - United States International Trade Commision Rulings

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HQ H004683

April 12, 2007

OT:RR:CTF:VS H004683 GG

CATEGORY: VALUATION

Mr. John Ellefson
American Eagle Outfitters
150 Thorn Hill Road
Warrendale, PA 15086

RE: Transaction value; charges incident to the international shipment; fuel surcharge; security charge; handling fee.

Dear Mr. Ellefson:

This is in response to your letter, dated November 17, 2006, in which you request a ruling on whether certain international freight and other charges shall be taken into account in determining the appropriate non-dutiable freight charges.

FACTS:

American Eagle Outfitters (“AEO”) is a specialty retailer that operates 827 stores in the United States, the District of Columbia, and Puerto Rico. AEO sources apparel and accessories from unrelated vendors and manufacturers overseas. While most current shipments are purchased on an FOB foreign port basis, AEO anticipates that some future shipments will be purchased using CIF as the term of sale. AEO would like to know if certain international freight and other charges, such as fuel surcharges, security charges, and handling fees, would be subject to duty under this future arrangement.

AEO indicates that each of the charges will be clearly itemized on its commercial documentation. Also, any non-dutiable claims for international transportation, related charges, and incidental fees will be based on the actual cost of those services. AEO enclosed a representative sample invoice and air waybill to demonstrate how the charges will be itemized. The invoice indicates a “C&F” term of sale, and the air waybill lists separate amounts for freight and “other charges,” the latter of which are described as “fuel surcharges,” “security charges,” and “handling.” The air waybill shows that the seller of the merchandise prepays the freight and other charges. An inquiry made to the local office of the freight forwarder that issued the sample air waybill as to the nature of the “other charges,” revealed that the fuel surcharge and security charges are fees typically assessed by air carriers on shippers of merchandise. It was also explained that “handling fees” could cover a variety of services, including the routine preparation of documents such as air waybills and other bills of lading.

ISSUE:

Whether the amounts for the freight, fuel surcharge, security charges, and handling may be excluded from the price actually paid or payable as international transportation or shipments costs.

LAW AND ANALYSIS:

The preferred method of appraisement is transaction value which is defined by section 402(b)(1) of the TAA (19 U.S.C. § 1401a(b)) as "the price actually paid or payable for the merchandise when sold for exportation to the United States..." plus certain additions specified in section 402(b)(1) (A) through (E). The term "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 from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller.

Transportation and insurance costs pertaining to the international movement of merchandise from the country of exportation, to the extent included in the price actually paid or payable, are to be excluded from the total payment made for imported merchandise appraised under transaction value. These costs are not the estimated costs, but the actual costs paid to the freight forwarder, transport company, etc. See Treasury Decision (“T.D.”) 00-20.

In Headquarters Ruling Letter ("HRL") 544538, December 17, 1992, U.S. Customs and Border Protection (“CBP”) acknowledged that pursuant to section 402(b)(4)(A) of the TAA the cost of international transportation is to be excluded from the price actually paid or payable for imported merchandise. However, CBP explained that in determining the cost of the international transportation or freight, it always looked to documentation from the freight company, as opposed to the documentation between the buyer and the seller, which often contains estimated transportation costs or charges. In essence, CBP requires documentation from the freight company because the actual cost, and not the estimated charges, for the freight is the amount that CBP excludes from the price actually paid or payable. The sample bill of lading submitted by AEO indicates that the seller pays a freight charge as well as additional charges for fuel surcharges, security surcharges, and handling fees. (The fact that the seller is responsible for the transportation costs is compatible with the use of the “C&F” term of sale on the associated sample invoice, because that particular term contemplates that the seller must pay the costs and freight necessary to bring the goods to the named port of destination in the United States

We note, however, that the use of both the “C&F” and “CIF” terms of sale is not technically correct in a situation involving shipment by air; their use is properly restricted to shipment by vessel. More appropriate terms might be, for example, “”CPT” or “CIP,” which may be used irrespective of the mode of transportation..)

In previous rulings, CBP has determined the following to be costs that are incident to the international shipment of the merchandise: terminal handling charges (HRL 547146, dated May 14, 1999); freight forwarder commissions (HRL 547074, dated September 17, 1999); documentation fee paid to shipping company for preparation and delivery of a bill of lading or waybill (HRL 547302 dated March 29, 1999); brokerage fees (HRL 545173, dated September 19, 1994). CBP in HRL 547074 noted that the types of fees ordinarily paid to freight forwarders are appropriately excluded from the price actually paid or payable.

Applied here, it is our determination that the actual freight costs, as well as the “other charges” that consist of the fuel surcharge, security charge, and handling fee, are amounts that are typically assessed by freight forwards for the services that they or carriers provide for the international shipment of merchandise. Accordingly, such costs should not be included in transaction value.

HOLDING:

The amounts for freight, fuel surcharges, and security and handling fees may be excluded from the price actually paid or payable as international shipment or transportation costs, provided the appropriate documentary support exists in any particular case.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs official handling the transaction.

Sincerely,

Monika R. Brenner
Chief, Value and Special Programs Branch

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