CLA-2 CO:R:CV:V 544239 VLB
District Director of Customs
Detroit, Michigan 48226-2568
RE: Decision on Application for Further Review of Protest
No. 3801-5-002675
Dear Sir:
This is in response to your memorandum of September 28,
1988, (PRO-1-COD D), concerning the subject protest. The protest
was filed against your decision in the liquidation of entries
made by the importer. The merchandise was appraised pursuant to
section 402(f) of the Tariff Act of 1930, as amended by the Trade
Agreements Act of 1979 (19 U.S.C. 1401a(f); TAA). You determined
that the appraised value of the merchandise was the price paid by
the seller plus brokerage and Canadian inland freight to the
Canadian seller's plant.
FACTS:
The merchandise in question is gate valves. The valves are
manufactured in Japan and sold for export to the seller in
Canada. The seller in turn sells the valves to the importer for
the same price that the seller paid to the manufacturer.
The seller and the importer are related parties under
section 402(g) of the TAA. Nevertheless, the importer contends
that it has a purchase agreement with the buyer to sell the
merchandise at cost between the two companies, i.e. the purchase
price from the Japanese manufacturer, and that transaction value
is the appropriate appraisal method.
You have concluded that neither the transaction value nor
any of the other enumerated appraisement methods are applicable
to this transaction, and therefore the merchandise must be
appraised under section 402(f) of the TAA.
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ISSUE:
Whether appraisement of the imported merchandise pursuant
to section 402(f) of the TAA was proper.
LAW AND ANALYSIS:
Transaction value, the preferred method of appraisement is
defined in section 402(b)(1) of the TAA as the "price actually
paid or payable for merchandise when sold for exportation to the
United States . . . ." Section 402(b)(2)(B) states the
following:
The transaction value between a related buyer and seller is
acceptable . . . if an examination of the circumstances of
the sale of the imported merchandise indicates that the
relationship between such buyer and seller did not
influence the price actually paid or payable; . . .
In determining whether the relationship between the parties
influences the price of imported merchandise, the buyer and
seller must prove that although they are related, they buy and
sell from one another as if they are not related. There are two
methods for determining whether the transaction value is
acceptable. The first method involves an examination of the
circumstances of sale of the imported merchandise to determine if
the relationship between the buyer and the seller influenced the
price actually paid or payable. The second method involves using
a series of test values as a basis of comparison to the
transaction value. If the transaction value closely approximates
any one of the test values, it will be accepted.
In this case, it appears that the parties have not met
either of the foregoing criteria. First, the price is not
settled in a manner consistent with the seller's normal pricing
practice. The seller admits that it incorporates a 25 percent
profit margin into the price for sales to non-related parties,
but excludes the profit margin when it sells to the importer.
Second, the parties failed to submit any evidence that indicated
that the price is consistent with industry practice or that the
alleged transaction value closely approximated a test value.
Therefore, transaction value cannot be used to appraise the
merchandise.
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Further, because there is no evidence of sales of identical
or similar merchandise to unrelated purchasers in the U.S., there
is no value that can serve as a basis of appraisement under
transaction value of identical or similar merchandise. Thus,
transaction value pursuant to sections 402(b) and (c) were
properly eliminated as means of appraisement.
However, prior to resorting to a section 402(f)
appraisement, it is necessary to proceed sequentially through the
remaining bases of appraisement. If it becomes necessary to
appraise pursuant to section 402(f) of the TAA, the value should
be based, to the greatest extent possible, on previously
determined value. See, 19 CFR 152.107(a).
In this case, deductive value is not an available method of
appraisement. Deductive value requires a value at which the
merchandise is resold in the U.S. In this case, there is no
evidence to indicate when or at what price the valves were sold
in the U.S.
Likewise, computed value cannot be used to appraise the
merchandise. Under computed value the following items are added
together: (1) the cost or value of the materials and the
fabrication employed in the product; (2) the profit and general
expenses equal to that usually reflected in sales of merchandise
of the same class as the imported merchandise; (3) the value of
any assists and (4) the packing costs. In the present case,
there is no evidence that establishes any of these amounts.
Therefore, the only method left for appraising the
merchandise is section 402(f), the method used to liquidate the
entry. We find that a reasonable approach was used in
determining this value. Specifically, the appraisement was based
on the seller's latest cost sheet which stated the price the
seller had paid for the merchandise. Brokerage and Canadian
inland freight to the seller's plant were then added to arrive at
the final value of the merchandise.
HOLDING:
In light of the foregoing, it is our conclusion that
transaction value pursuant to section 402(b) of the TAA was
properly rejected as a means of appraisement. Moreover, the
method established by Customs under section 402(f) in liquidating
the subject entry was proper under the circumstances presented.
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The protest should be denied. A copy of this decision
should be attached to Form 19, Notice of Action to be sent to the
protestant.
Sincerely,
John Durant, Director,
Commercial Rulings Division
cc: CLA-2 CO:R:C:V:VLB:MM: FNL 11/16/88