HQ H007667 - Valuation of melons; deductive value; deductions under 19 CFR 152.105(d) - United States International Trade Commision Rulings

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HQ H007667

May 25, 2007

OT:RR:CTF:VS H007667 KSG

CATEGORY: VALUATION

Ronald A. Oleynik, Esq. and Vicky H. Wang, Esq.
Holland & Knight LLP
2099 Pennsylvania Avenue, NW
Suite 100
Washington, D.C. 20006-6801

RE: Valuation of melons; deductive value; deductions under 19 CFR 152.105(d)

Dear Mr. Oleynik and Ms. Wang:

This is in response to your request for a binding ruling dated February 23, 2007, on behalf of Turbana Corporation concerning imported honeydew melons from Panama. The issue presented relates to the proper valuation of imported honeydew melons.

FACTS:

This case involves honeydew melons that you state are classified in subheading 0807.19 of the Harmonized Tariff Schedule of the United States (“HTSUS”).

The melons will be sold by Latina Farms S.A. to Turbana based on an agreement for the 2007 season. The sale is on a consignment basis.

Latina is responsible for the processing and packaging of the fruit, pays the foreign inland freight and the ocean freight, pays the costs of insurance until the fruit reaches the U.S. and pays the costs to obtain the phytosanitary certification required for entry into the U.S. The melons are shipped via a through bill of lading from Panama to the U.S.

Turbana will “Accept” the fruit upon delivery to the U.S. Turbana expects to sell the fruit to unrelated third parties within one week of entry into the U.S. Upon accepting the fruit, Turbana pays a $2.00 per box advance on the fruit. Final payment is based on a formula set out in the agreement.

The formula for payment is the gross income of the sale of the fruit in the U.S. to a third party less the following adjustments:

Any claims for improper quality
Advance equal to $2.00 per box
Costs and expenses of Turbana for marketing and distribution Turbana’s overhead charge equal to 10% of net sales Ocean freight
Customs duties, harbor taxes
Loading and unloading costs at the port
Inland freight in the U.S.
Other actual shipping and landing costs incurred for inspection in the U.S., including USDA inspection and Salesman incentive of $.25 per box

LAW AND ANALYSIS:

The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. 1401a. Transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for five enumerated statutory additions. 19 U.S.C. 1401a(b). In order for imported merchandise to be appraised under the transaction value method, it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States.

In this case, there is no sale for exportation to the United States. Rather, the merchandise is entered into the U.S. pursuant to a consignment agreement. Transaction value is not applicable with respect to merchandise imported on consignment.

When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. 19 U.S.C. 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. 1401a(c)); deductive value (19 U.S.C. 1401a(d)); computed value (19 U.S.C. 1401a(e)); and the “fallback” method (19 U.S.C. 1401a(f)).

The transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, of merchandise exported to the United States at or about the same time as that being appraised. See 19 U.S.C. 1401a(c). While produce and fruit is often sold on consignment, it is also possible that there are sales of identical or similar merchandise at the same commercial level and in substantially the same quantity exported to the U.S. at or about the same time as the fruit involved in this case. For instance in Four Seasons Produce, Inc. v. United States, 25 CIT 1395 (2001), Mexican asparagus, exported to the U.S. on consignment, was appraised based on the transaction value of identical or similar merchandise. The court noted that Customs had considered the issue of the perishable nature and price fluctuations in the produce market in interpreting the statutory language “at or about the time” to arrive at a transaction value of identical or similar merchandise. The court also noted that Customs considered that in the case of perishable products, such as asparagus, the prices may fluctuate seasonally, weekly or even daily. Thus, frequent price fluctuations did not preclude the appraisement of the vegetable based on the transaction value of identical or similar merchandise. In this case, it may be possible to appraise the imported merchandise in a similar manner. If not, the deductive value method would apply.

Under the deductive value method, merchandise is appraised on the basis of the price at which the merchandise concerned 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. See 19 U.S.C. 1401a(d)(2)(A)(i)-(ii). This price is subject to certain enumerated deductions. See 19 U.S.C. 1401a(d)(3).

Pursuant to 19 CFR 152.105(c):

The deductive value of the merchandise being appraised is whichever of the following prices (as adjusted under paragraph (d) of this section) is appropriate depending upon when and in what condition the merchandise concerned is sold in the United States: (1) If the merchandise concerned is sold in the condition as imported at or about the date of importation of the merchandise being appraised, the price is the unit price at which the merchandise concerned is sold in the greatest aggregate quantity at or about such date; (2) If the merchandise concerned is sold in the condition as imported but not sold at or about the date of importation of the merchandise being appraised, the price is the unit price at which the merchandise concerned is sold in the greatest aggregate quantity after the date of importation of the merchandise being appraised but before the close of the 90th day after the date of such importation.

The term “merchandise concerned” means the merchandise being appraised, identical merchandise, or similar merchandise. 19 U.S.C. 1401a(d)(1).

The phrase “unit price in greatest aggregate quantity” is described in 19 CFR 152.105(h) as “the unit price established after a sufficient number of units have been sold to an unrelated person. The unit price to be used when the units have been sold in different quantities will be that at which the total volume sold is greater than the total volume sold at any other unit price.”

The Statement of Administrative Action (“SAA”) H.R. Doc. No. 153 (96th Cong., 1st Sess. Pt.2 (1979)), adopted by Congress contains the following language further explaining the determination of “greatest aggregate quantity”:

The unit price at which merchandise is sold in the greatest aggregate quantity is the unit price at which such merchandise is sold to unrelated persons, at the first commercial level after importation (in cases to which either of the first two prices applies) or after further processing (in cases to which the third price applies) at which such sales take place, in a total volume that is (i) greater than the total volume sold at any other unit price; and (ii) sufficient to establish the unit price. As an example of the determination of the unit price, two sales of the imported merchandise occur. In the first sale, 500 units are sold at a price of $95/unit. In the second sale, 400 units are sold at a price of $90/unit. In this example, the greatest number of units sold at a particular price is 500; therefore the unit price in the greatest aggregate quantity is $95. In order to determine a valid unit price in each case that deductive value is used, a number of units sufficient to be representative of commercial reality must have been sold. Determinations of what constitutes a number of units sufficient to establish the unit price must be made on a case-by-case basis whenever all the units of the merchandise concerned have not been resold.

In this case, the importer expects to sell the melons within one week of entry into the U.S. This price would satisfy the “at or about the same date” criteria set forth in 19 CFR 152.105(c)(1) and would be an acceptable basis for valuation in this case.

In 19 CFR 152.105(d), the following deductions from price are listed:

Any commission usually paid or agreed to be paid, or the addition usually made for profit and general expenses, in connection with sales in the U.S. of imported merchandise that is of the same class or kind regardless of the country of exportation, as the merchandise concerned;

The actual costs and associated costs of transportation and insurance incurred with respect to international shipments from the country of exportation to the U.S.;

The usual costs and associated costs of transportation and insurance incurred for shipment from the place of importation to the place of delivery in the U.S., if not included as a general expense; and

The customs duties and other Federal taxes currently payable on the merchandise and any Federal excise tax on or measured by the value of the merchandise for which vendors in the U.S. ordinarily are liable.

Counsel proposes the following deductions from the third party sales price: 1) the profit and general expenses in connection with the sales in the U.S. of the melons, which include the costs and expenses for marketing and distribution of the fruit, overhead charge equal to 10% of the net sales price, and other actual shipping and landing costs for the inspection of the melons, if incurred after the release of the merchandise by CBP; 2) actual costs and associated costs of transportation and insurance incurred for the international shipment from the country of exportation to the U.S., which includes insurance paid by Latina under the Agreement, inland transportation of the melons to the port of shipment in Panama or Costa Rica, the ocean freight paid by Turbana, the loading and unloading costs at the ports of destination in the U.S. paid by Turbana, and the inland freight in the U.S. paid by Turbana; and 3) Customs duties, harbor taxes and merchandise processing fees paid by Turbana and the cost born by Latina in obtaining the phytosanitary certificate for the importation of the fruit into the U.S.

Profits and General Expenses

As stated above, 19 CFR 152.105(d)(1) allows for a deduction for any commission usually paid or agreed to be paid or the addition usually made for profit and general expenses in connection with sales in the U.S. of imported merchandise that is of the same class or kind; regardless of the country of exportation, as the merchandise concerned. In this case, counsel is proposing to deduct certain expenses that it contends are profit and general expenses incurred in connection with sales in the U.S. of the melons. The rules for deducting profit and general expenses are set forth in 19 CFR 152.105(e), which state that the deduction will be based on the importer’s profit and general expenses unless those costs are inconsistent with those reflected in other sales in the U.S. if imported merchandise of the same class or kind.

In HRL 546120, dated March 26, 1996, U.S. Customs & Border Protection (“CBP”) allowed the deduction for repacking and repackaging, stating that the expenses were incurred after the merchandise was released from Customs custody in connection with sales in the U.S. of an imported metallic product.

Based on the above, we find that the costs and expenses for marketing and distribution of the fruit are an acceptable deduction as provided for in 19 CFR 152.105(d)(1). We assume for the purposes of this ruling that the “overhead charges” include both actual costs of overhead and profit. We find that the deduction for overhead charges is acceptable under 19 CFR 152.105(d) assuming that the profit charged is the normal and usual profit in the industry. We find that the costs of loading and unloading costs at the ports of destination in the U.S. are a general expense in connection with sales in the U.S. and would be a proper deduction under 19 CFR 152.105(d)(1). Further, we find that deductions for other actual shipping and landing costs of the inspection of the fruit incurred by the importer after the merchandise was released from Customs custody are acceptable 19 CFR 152.105(d)(1).

Transportation and Insurance

Deductions are allowed under 19 CFR 152.105(d)(2) and (3) for the actual costs and associated costs of transportation and insurance incurred with respect to international shipments from the country of exportation to the U.S. and the usual costs and associated costs of transportation and insurance incurred for shipment from the place of importation to the place of delivery in the U.S., if not included as a general expense.

In HRL 547826, CBP held that foreign inland freight could be deducted as part of international shipments from the country of exportation to the U.S. provided there is one through-bill of lading for the entire shipment.

Pursuant to the above, the actual ocean freight paid by Turbana and the insurance paid by Latina; and the usual inland freight in the U.S. paid by Turbana could be properly deducted under 19 CFR 152.105(d). Further, since a through-bill of lading is used in this transaction, the foreign inland freight to the port of shipment in Panama may be deducted under 19 CFR 152.105(d)(2).

III. Customs Duties and other federal taxes

As stated above, customs duties and other Federal taxes currently payable on the merchandise and any Federal excise tax on or measured by the value of the merchandise for which vendors in the U.S. ordinarily are liable are proper deductions pursuant to 19 CFR 152.105(d)(4). Accordingly, any customs duties, harbor taxes or merchandise processing fees paid by Turbana for which U.S. vendors ordinarily are liable are proper deductions under this provision.

Counsel argues that the cost born by Latina in obtaining the phytosanitary certificate for the importation of the melons into the U.S. should also be deducted under this provision. The U.S. Department of Agriculture website indicates that “a phytosanitary certificate is an official document issued by an exporting country.” See www.aphis.usada.gov. We find that since the fee for the phytosanitary certificate is not a U.S. federal tax for which vendors in the U.S. are liable, this cost is not properly deductible. Further, we note that since the cost is paid by Latina and not the importer, it could not be deducted as a general expense under 19 CFR 152.105(d)(1) either.

HOLDING:

We find that the melons in this case cannot be appraised under the transaction value method. Further, it appears that the melons cannot be appraised under the transaction value of similar or identical merchandise method. It would be proper in this case to appraise the melons under the deductive value method.

Pursuant to 19 CFR 152.105(d)(1), we find that a deduction is proper for: the costs and expenses for marketing and distribution of the fruit: for overhead charges assuming that the profit charged is the normal and usual profit in the industry; the costs of loading and unloading costs at the ports of destination in the U.S.; and for other actual shipping and landing costs of the inspection of the fruit incurred by the importer after the merchandise was released from Customs custody.

We find that deductions are proper under 19 CFR 152.105(d)(2) and (3) for: the actual ocean freight for the melons; the insurance paid in connection with the ocean freight; the usual inland freight in the U.S.; and the foreign inland freight to the port of shipment in Panama.

Finally, we find that under 19 CFR 152.105(d)(4), a deduction is proper for any customs duties, harbor taxes or merchandise processing fees paid by Turbana for which a U.S. vendor is ordinarily liable. We find that a deduction is not proper in this case for the cost of the phytosanitary certificate.

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, Valuation & Special Programs Branch

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