HQ W563614 - Application for Further Review (“AFR”) of Protest No. 5201-05-100407; transaction value of imported merchandise; bona fide sale for export to the United States; related parties - United States International Trade Commision Rulings

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HQ W563614

March 5, 2007

OT:RR:CTF:VS W563614 HEF

CATEGORY: VALUATION

Port Director
U.S. Customs and Border Protection
6601 Northwest 25th Street
Room 272
Miami, Florida 33122

RE: Application for Further Review (“AFR”) of Protest No. 5201-05-100407; transaction value of imported merchandise; bona fide sale for export to the United States; related parties

Dear Port Director:

This is in reply to an application for further review (“AFR”) of Protest No. 5201-05-100407, dated November 9, 2005, timely filed by protestant and importer of record, General Electric Energy Parts, Inc. (“GEEPI”), concerning the valuation of two entries for a shroud set and gas turbine part.

In connection with the protest, GEEPI submitted a spreadsheet entitled “Summary of Valuation Change,” original and revised entry summaries for the entries in question, the invoices that accompanied the original entry summaries, and two invoices denoted as “correct invoices.”

FACTS:

The imported merchandise was appraised based on the values declared by GEEPI on the original entry summaries, dated October 20, 2004, and January 4, 2005. The original entry summaries list GEEPI as the importer of record. The entry summary dated October 20, 2004, is for the shroud set, and it states that the parties to the transaction are related. The entry summary also reflects that the merchandise was exported from the Netherlands and that Hungary is the country of origin of the merchandise. The entry summary dated January 4, 2005, is for the gas turbine part, and it states that the parties to the transaction are not related. The entry summary also reflects that the merchandise was exported from Italy and that Italy is the country of origin of the merchandise.

GEEPI originally submitted shipping invoices, dated October 4, 2004, and December 14, 2004, respectively, with the original entry summaries. These shipping invoices reflect transactions between General Electric International, Inc. (“GEII”), of Atlanta, Georgia, and two of its U.S. customers. These invoices list GEII as the seller of the imported merchandise. The invoices also indicate that title to the merchandise passes after the merchandise leaves the factory. In addition, the invoices contain the Incoterm “DDP” followed by the names of the U.S. cities where GEII’s U.S. customers are located.

GEEPI contends that the entered values were over declared on the two original entry summaries and that the correct values should be based on the transaction values of alleged sales between GEII and the foreign seller, General Electric Hungary Co. Ltd. (“GE Hungary”). To support its claim, GEEPI has submitted two “correct” invoices (hereinafter referred to as the “GE Hungary invoices”), dated October 5, 2004, and December 28, 2004. These invoices are sales invoices issued by GE Hungary and reflect that the merchandise should be shipped to the addresses of the two U.S. customers. However, the October GE Hungary invoice states that “GEII Energy Parts” should be billed for the stated amount. The December GE Hungary invoice states that “GEII Contractual Services” should be billed for the stated amount. Both invoices list the passage of title as “Factory (Ex works).” The October GE Hungary invoice lists Hungary as the country of origin of the shroud set. The December GE Hungary invoice lists Italy as the country of origin of the gas turbine part.

ISSUE:

Whether the imported merchandise may be appraised based on the transactions between GEII and GE Hungary.

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 primary basis of appraisement under the TAA is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus certain enumerated additions to the extent they are not otherwise included in the price actually paid or payable. 19 U.S.C. § 1401a(b)(1). Thus, for imported merchandise to be appraised under transaction value, it must be the subject of a bona fide sale between the buyer and seller and it must be a sale for exportation to the United States.

Bona Fide Sale

In the instant case, protestant and importer of record, GEEPI, contends that the values for the imported merchandise should be based on the transaction values of the alleged sales between GE Hungary and GEII. For Customs purposes, the word “sale” generally is defined as a transfer of ownership in property from one party to another for consideration. J. L. Wood v. United States, 62 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974). While J. L. Wood was decided under the prior appraisement statute, Customs adheres to this definition under the TAA. In determining whether property or ownership has been transferred, CBP initially considers whether the alleged buyer has assumed the risk of loss and acquired title to the imported merchandise.

The GE Hungary invoices submitted by the protestant denote the passage of title of the goods as “factory (ex works).” “Ex works” is actually a term of sale, which means that the seller fulfills his obligation to deliver when he has made the goods available at his premises to the buyer. See Incoterms 2000, International Chamber of Commerce, 27 (1999). Consequently, the buyer assumes all risk of loss or damage involved in taking the goods from the seller’s premises. Id. Incoterms are not intended to denote the transfer of ownership or other property rights. Id. at 6. However, in this instance, where title passage is listed as “factory (ex works),” we will construe the term to also mean that title to the goods passes to the buyer when he takes the goods from the seller’s premises. The GE Hungary invoices also indicate that the merchandise was to be shipped to the addresses of the ultimate U.S. customers, but that GEII would be billed for the merchandise. Thus, if GEII is the buyer, as GEEPI asserts, title and risk of loss passed to GEII when GE Hungary made the merchandise available to GEII at its factory.

The original shipping invoices, where GEII is listed as the seller, use the Incoterm “DDP” (Delivered Duty Paid) followed by the names of cities where its U.S. customers are located. In DDP shipments, the seller fulfills his obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear the risks and costs, including duties, taxes, and other charges of delivering the goods cleared for importation. See id. at 121. However, the original shipping invoices also specify title passage as “factory.” Therefore, title passes to GEII when the goods are made available to GEII at GE Hungary’s factory then immediately thereafter from GEII to its two U.S. customers. Consequently, GEII is considered to hold title only momentarily, if at all. Hence, it does not appear that bona fide sales occurred between GE Hungary and GEII, as the invoices indicate simultaneous passages of title. See Headquarters Ruling Letter (“HRL”) 548520, dated July 30, 2004, and HRL 547697, dated December 27, 2001. However, in such circumstances, Customs will consider other pertinent evidence or documentation when determining the existence of a bona fide sale.

In addition to whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise as indicated by the terms of sale, several factors might indicate whether a bona fide sale exists between a potential buyer and seller. In determining whether property or ownership has been transferred, CBP may examine whether the potential buyer paid for the goods, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller. See HRL 545705, dated January 27, 1995.

The GE Hungary invoices indicate that the merchandise was to be shipped directly to GEII’s U.S. customers. This suggests that GEII never took possession of the goods. Moreover, no other relevant evidence has been made available concerning the roles of the parties and the transactions in general. In addition, no evidence of payment by GEII was provided. Therefore, we are unable to determine whether GEII actually provided GE Hungary with any consideration for the alleged sales of the goods. Consequently, based on the information provided, we cannot conclude that there were bona fide sales between GE Hungary and GEII.

Sale for Export

Even if the protestant established that there were bona fide sales between GE Hungary and GEII, it is unclear whether the shroud set was clearly destined for the United States at the time it was sold to GEII. The GE Hungary invoices indicate that GE Hungary was to ship the merchandise to GEII’s U.S. customers. However, the October entry summary for the shroud set indicates that the merchandise was shipped from the Netherlands and that the country of origin of the merchandise is Hungary. Although this fact does not preclude a finding that the merchandise was clearly destined for the United States, this is one factor to consider with all other available evidence. However, no other evidence has been offered to refute the possibility that a contingency of diversion may exist. For instance, no evidence has been proffered to suggest that there is something unique about the merchandise that would prevent it from being diverted into other non-U.S. markets at the time of its shipment to the Netherlands. See, e.g. HRL 547349, dated May 5, 2000, (where the absence of anything unique about merchandise shipped to a warehouse for consolidation and quality control inspection contributed to a determination that the merchandise was not “clearly destined” for the U.S. market). We also note that the December GE Hungary invoice reflects that the country of origin of the gas turbine part is Italy. The corresponding original entry summary reflects that the country of origin and the country of export of the gas turbine part is Italy. This evidence seems to indicate that the gas turbine part was shipped directly from its country of manufacture to the United States. However, as noted above, we do not have sufficient information to determine that a bona fide sale occurred between GE Hungary and GEII.

Relationship of the Parties

If it were established that the transactions between GE Hungary and GEII were bona fide sales for export to the United States, the use of the transaction value method of appraisement based on this related party sale is not necessarily possible. Section 152.103(j)(1)(iv), Customs Regulations (19 C.F.R. § 152.103(j)(1)(iv)), provides that imported merchandise is appraised under transaction value only if the buyer and seller are not related, or if related, the transaction value is deemed to be acceptable. In the alleged sales, we assume that the buyer, GEII, and the seller, GE Hungary, are related parties pursuant to 19 U.S.C. § 1401a(g)(1). The transaction value between related parties is acceptable only if an examination of the circumstances of sale indicates that the relationship between the parties did not influence the price actually paid or payable, or the transaction value of the imported merchandise closely approximates the transaction value of identical or similar merchandise in sales to unrelated buyers in the United States or the deductive or computed value for identical or similar merchandise. 19 U.S.C. § 1401a(b)(2)(B). Under the circumstances of sale approach, if the parties buy and sell from one another as if they were unrelated, transaction value will be considered acceptable. Thus, if the price is determined in a manner consistent with normal industry pricing practice, or with the way the seller deals with unrelated buyers, the price actually paid or payable will be deemed not to have been influenced by the relationship. Furthermore, the price will be acceptable if it is shown that the price is adequate to ensure recovery of all costs plus a profit that is equivalent to the firm’s overall profit realized over a representative period of time in sales of merchandise of the same class or kind. Statement of Administrative Action, H.R. Doc. No. 153, Pt. II, 96th Cong., 1st Sess. (1979), reprinted in Department of Treasury, Customs Valuation under the Trade Agreements Act of 1979, 54 (1981). See also 19 C.F.R. § 152.103(j)(2)).

Protestant has provided no evidence on this issue. With regard to the alleged sales between GE Hungary and GEII, the protestant has not offered any evidence regarding the manufacturer’s pricing practices in sales to unrelated parties or the normal pricing practices of the industry. There is also no information regarding the manufacturer’s costs and overall profit levels. Therefore, we cannot determine whether the related party price would be acceptable, even if a bona fide sale for export had been established. Finally, the protestant provided no information to demonstrate whether the related party price closely approximates previously accepted test values.

Based on the facts of the instant case, we conclude that protestant has not presented enough evidence to establish that bona fide sales for export to the United States occurred between GE Hungary and GEII. Furthermore, if it were established that bona fide sales for export to the United States occurred between GE Hungary and GEII, we could not determine from the information provided whether the use of transaction value between the related parties would be acceptable. Accordingly, we must uphold the initial appraisement of the merchandise based on the values declared by the importer for the transactions.

HOLDING:

As it cannot be determined from the information provided that bona fide sales for export to the United States occurred between GEII and GE Hungary, the protest is 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 CBP 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 and Trade Facilitation Division

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