HQ W548589 - Application for Further Review of Protest 2720-03-100418; Valuation of Integrated Circuits; Spot Market Prices; Transaction Value of Identical or Similar Merchandise; Fallback Valuation Method - United States International Trade Commision Rulings

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HQ W548589

November 23, 2005

RR:CTF:VS 548589 GG

CATEGORY: VALUATION

Port Director
U.S. Customs and Border Protection
301 E. Ocean Blvd.
Long Beach, CA 90802

RE: Application for Further Review of Protest 2720-03-100418; Valuation of Integrated Circuits; Spot Market Prices; Transaction Value of Identical or Similar Merchandise; Fallback Valuation Method

Dear Port Director:

This is in response to the Application for Further Review (AFR) of the above-referenced protest. It was forwarded to our office for resolution following the setting aside of its earlier denial pursuant to 19 U.S.C. § 1515(c).

FACTS:

The protestant is American Casualty Co. of Reading PA (American Casualty). The protest pertains to three July 1999 entries of integrated circuits, or DRAMS, produced by Hyundai and LG Semiconductor of South Korea. Gallop Couriers Inc. (Gallop) was the importer of record. The integrated circuits were subject to antidumping duties (ADD), a fact that was duly noted by the annotation of the ADD case number on the CF 7501’s.

U.S. Customs and Border Protection (CBP) had, in the month preceding the three subject entries under protest, issued a CF 28 Request for Information to Gallop relating to earlier Gallop entries of identical or similar products. The CF 28 asked whether Gallop was related to the seller (Trend Tronic) and requested that purchase orders and proof of payments be submitted for its entered integrated circuits. By response dated July 29, 1999, Gallop indicated that it was not related to Trend Tronic and was “not involved in any financial transactions involving this product.” Gallop explained that it was “simply Top Phil’s/Trend Tronic’s receiving, distribution and transportation agent in the United States” and that it “distribute[d] this product which is shipped here free domicile via United Parcel Service.” Notwithstanding this disclaimer, Gallop made entry based on the invoice price between Trend Tronic and Gallop.

Gallop filed for Chapter 7 bankruptcy in 2001. In March 2003 CBP issued to Gallop through its bankruptcy trustee a CF 29 Notice of Action, which advised that various Gallop entries, including the three under protest here, were in the liquidation process and were being value advanced. (Liquidation had been suspended until this time because of the ADD investigation.) CBP gave the following explanation of the value advance:

At the time of entry, various types of 16 Megabit DRAMS, 63 Megabit DRAMS, and 64M Modules were undervalued at $0.20 to $4.00 per unit. Each entry is being re-appraised at the Daily Spot Market Prices provided by Lehman Brothers, American IC Exchange (AICE).

Gallop was advised of its protest rights and informed that it would receive a bill for the additional antidumping duties and merchandise processing fees. In July 2003 CBP made formal demand on American Casualty for payment of delinquent amounts due. American Casualty was the surety for the bonds that secured the three entries. It timely protested the liquidation of these entries on September 9, 2003. Counsel for American Casualty supplemented the protest in letters to CBP dated January 23 and April 19, 2004. In arguing that further review was warranted, counsel stated that the protested decision was inconsistent with a considerable number of CBP rulings, which it cited. CBP on May 5, 2004, denied the AFR, for the reason that “[n]o facts [were] presented for HQ to review.” The protest was also denied in full under the justification that the “merchandise [was] properly appraised using daily spot market prices under transaction value 402(f).” A petition to set aside the denial of the AFR under 19 U.S.C. § 1515(c) was filed on July 2, 2004. CBP granted the petition on July 19, 2004, resulting in the current CBP Headquarters review of this matter.

ISSUE:

Whether CBP’s decision to reject transaction value and to appraise the integrated circuits by resort to daily spot market prices under the fallback valuation method was correct.

LAW AND ANALYSIS:

Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA: 19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. 19 U.S.C. § 1401a(b)(1). The protestant claims that the invoices represent sales that may be used to appraise the integrated circuits under transaction value. CBP in Long Beach disagrees, instead taking the position that there were no sales between Trend Tronic and Gallop.

Inasmuch as the transaction value method requires a sale for exportation to the United States, there must be a bona fide sale between the buyer and seller in order for merchandise to be appraised on this basis. In the instant case there was no sale. In its letter dated July 29, 1999, Gallop’s Executive Vice President, responding to the CF 28 request for purchase orders and proof of payment, advised that Gallop was Trend Tronic’s receiving, distribution and transportation agent in the United States. The company denied involvement in “any financial transactions concerning this product.” In line with this disclaimer, Gallop did not provide any documentation relative to a sale for exportation to the United States. In HQ 546122, dated January 11, 1996, CBP upheld the port’s rejection of the use of transaction value where the importer did not provide requested documentation to substantiate the invoice price. The circumstances are similar here. The record reflects that there was no sale between Gallop and Trend Tronic. Therefore, the transaction value method of appraisement, which was the basis of appraisement claimed by the importer of record at the time of entry, is inapplicable. Accordingly, the port properly rejected the use of the transaction value method in the instant case.

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. (19 U.S.C. § 1401a(c)). CBP in its Protest and Summons Information Report wrote:

At the time of liquidation, the only prices available for comparison from Customs entries were identical for Hyundai and LG Semiconductor, since the entries for similar by other makers had been liquidated for several years. For the time period for the three protested entries, July 9th through July 19th, there was only one DRAM identical to the Hyundai, and it was imported July 16th at $2.42, for 50000 pieces. This compares with the liquidated appraised price of $2.40. There were no LG Semiconductor entries for July, and the LG DRAMs were a different type than any of the Hyundai importations.

We infer from this language that it may thus be possible to appraise at least some of the imported integrated circuits using the transaction value of identical merchandise. Those transaction values of identical merchandise, where available, should be used in lieu of the spot market prices on which CBP based its appraisement of the integrated circuits. It is still necessary, however, to determine the manner in which the remaining integrated circuits, if any, shall be appraised.

Deductive value is the next appraisement method. Under this valuation method, merchandise is appraised on the basis of the price at which it 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. As noted above, Gallop is Trend Tronic’s U.S. receiving, distribution and transportation agent. There is no information in the record about the sale in the U.S. of the imported merchandise, nor any indication that Gallop provided any such information in connection with the CF 28. Absent any information in this regard, the deductive value method is inapplicable.

If deductive value cannot be used, the next applicable method of appraisement in order of sequence is computed value. Under this method, merchandise is appraised on the basis of the material and processing costs incurred in the production of imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. 19 U.S.C. § 1401(e)(1). Computed value information is unavailable; consequently, this method of appraisement cannot be used here.

When the value of imported merchandise cannot be determined under 19 U.S.C. §§ 1401a(b)-(e), it may be appraised on the basis of a value derived from one of those methods, reasonably adjusted to the extent necessary to arrive at a value. This is generally known as the “fallback” valuation method. However, it may not be appraised, inter alia, on the basis of the price on the domestic market in the country of export, the selling price in the U.S. of merchandise produced in the U.S., minimum prices or arbitrary or fictitious values. 19 U.S.C. § 1401a(f); 10 CFR § 152.108.

Under section 500 of the Tariff Act of 1930, as amended, which constitutes CBP’s general appraisement authority, the appraising officer may:

Fix the final appraisement of merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of costs or costs of production in any invoice, affidavit, declaration, other document to the contrary notwithstanding.

19 U.S.C. § 1500(a) (emphasis added).

In this regard, the Statement of Administrative Action (SAA), which forms part of the legislative history of the TAA, provides in pertinent part:

Section 500 is the general authority for Customs to appraise merchandise. It is not a separate basis of appraisement and cannot be used as such. Section 500 allows Customs to consider the best evidence available in appraising merchandise. It allows Customs to consider the contract between the buyer and seller, if available, when the information contained in the invoice is either deficient or is known to contain inaccurate figures or calculations. Section 500 authorize [sic] the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise. This could be the invoice, the contract between the parties, or even the recordkeeping of either of the parties to the contract.

In those transactions where no accurate invoice or other documentation is available, and the importer is unable, or refuses, to provide such information, then reasonable ways and means will be used to determine the appropriate value, using whatever evidence is available, again within the constraints of section 402.

Statement of Administrative Action, H.R. Doc. No. 153, 96 Cong., 1st Sess., pt 2, reprinted in, Department of the Treasury, Customs Valuation under the Trade Agreements Act of 1979 (October 1981), at 67.

Section 152.107 of the Customs Regulations (19 CFR § 152.107) details how the fallback method can be broadly interpreted to arrive at a dutiable value. It provides, in pertinent part, the following:

§ 152.107 Value if other values cannot be determined or used.

Reasonable adjustments. If the value of imported merchandise cannot be determined or otherwise used for the purposes of this subpart, the imported merchandise will be appraised on the basis of a value derived from the methods set forth in §§ 152.103 through 152.106, reasonably adjusted to the extent necessary to arrive at a value. Only information available in the United States will be used.

Identical merchandise or similar merchandise. The requirement that identical merchandise, or similar merchandise, should be exported at or about the same time of exportation as the merchandise being appraised may be interpreted flexibly. Identical merchandise in any country other than the country of exportation or production of the merchandise being appraised may be the basis for customs valuation. Customs values of identical merchandise, or similar merchandise, already determined on the basis of deductive value or computed value may be used.

Those integrated circuits that cannot be appraised under transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)), as previously discussed, shall be appraised under the fallback valuation method, with these two regulatory provisions serving as a guideline. In view of the fact that there may be shipments of identical or similar merchandise, particular attention should be paid to § 152.107(b), which provides for the modified transaction value of identical or similar merchandise under the fallback method. Where no such values exist, we find that the appraised value in this instance may be based on the information on DRAM prices that was obtained from the American IC Exchange, an electronic exchange for semiconductors and semiconductor products that was in existence when these entries were liquidated. Such information is neither arbitrary nor fictitious, but represents a reasonable and transparent effort to establish a value in the absence of acceptable information from the parties to the transaction. In this regard, we note that under transaction value, the price actually paid or payable may be arrived at through the application of a formula, such as the price in effect on the date of export in the London Commodity Market. 19 CFR § 152.103(a). Furthermore, reliance on the spot market prices is not prohibited under section 19 U.S.C. § 1401a(f) inasmuch as the prices are not based, for example, on the selling price of merchandise produced in the U.S., or domestic prices in South Korea

HOLDING:

CBP’s decision to reject transaction value as the appraisement method was correct, because there was no evidence that the integrated circuits were sold for exportation to the United States. The decision to appraise the integrated circuits under 19 U.S.C. § 1401a(f) using daily spot market prices was also correct, to the extent that there were no other available appraisement methods, such as the transaction value of identical or similar merchandise, or a modified transaction value of identical or similar merchandise under the fallback valuation method. The protest is, therefore, DENIED.

In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry 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 make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Myles B. Harmon, Director
Commercial & Trade Facilitation Division

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