VAL CO:R:C:V 544364 VLB
District Director of Customs
300 South Ferry Street
Terminal Island
San Pedro, California 90731
RE: Decision on Application for Further Review of Protest
No. 2704 88 003730; Dutiability of Monies Paid for Molds
Dear Sir:
This protest was filed against your decision in the liquidation of entries made by Teleflora Products, Inc. (hereinafter referred to as "the importer"). The merchandise was entered in May through October 1987, and was appraised pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(b); TAA).
FACTS:
The merchandise in question is hurricane lamp bases and crystal bowls produced by J.G. Durand (hereinafter referred to as "the manufacturer"). On October 17, 1986, the importer issued two purchase orders to the manufacturer. One purchase order covered the procurement of a hurricane lamp base mold. Under this purchase order, the manufacturer would refund one half of the $77,000 mold purchase price upon the order and completion of 300,000 bases. The entire amount was refundable upon the order and completion of 600,000 bases.
The second purchase order was for the procurement of a mold for use in manufacturing crystal bowls. Under the second purchase order, Teleflora would receive a refund of one half of the $86,350 mold purchase price if 150,000 pieces were ordered and completed. The entire mold cost was refundable if 300,000 pieces were ordered and completed. However, on March 30, 1987, the second purchase order was amended to provide refunds based on the following schedule:
Quantity Purchased Amount of Refund
100,000 $28,783
120,000 $34,540
140,000 $40,312
150,000 $43,175
Teleflora placed the following orders base on a price per unit and entered the hurricane lamp bases and crystal bowls that were manufactured with the molds:
Purchase Order No. Date Ouantity Merchandise Entered
17414 3 6 87 304,368 Lamp Bases 5 11,13,
19&29,1987
17412 3 6 87 48,000 Lamp Bases NO
18555 8 4 87 192,192 Lamp Bases 9 25&28 &
10 15 87
Total 544,560
17412 3 6 87 14,400 Crystal Bowls NO
17413 3 16 87 65,928 Crystal Bowls 5 18&19 87
18556 8 4 87 40,008 Crystal Bowls 9 24&29 87
Total 120,336
On May 21, 1987, the manufacturer sent the importer a check for $38,500 as reimbursement for half of the cost of the hurricane lamp base mold. Subsequently, on October 15, 1987, the manufacturer reimbursed the importer an additional $32,694 for the hurricane lamp base mold as well as $34,204 as reimbursement for the crystal bowl mold. The net result was that the importer was reimbursed $71,194 for the hurricane lamp base mold and $34,204 for the crystal bowl mold.
The issue of whether the monies paid by the importer were part of the price actually paid or payable for the hurricane lamp bases; and what impact the reimbursements had on the appraised value of the hurricane lamp bases was addressed in HRL 543983 (IA 39 87), dated November 2, 1987. In HRL 543983, Customs held that the amount paid by the importer was part of the price actually paid or payable for the imported merchandise. In addition, Customs concluded that the agreement between the parties concerning the purchase price of the mold, and the method through which the mold would be repurchased by the seller, did not constitute a formula under 19 CFR 152.103(a)(1). Finally, Customs held that the monies returned to the seller in the form of a refund were to be disregarded in determining the transaction value of the imported merchandise because the return of the monies was considered to be post importation rebates under section 402(b)(4)(B) of the TAA.
This protest is essentially a reconsideration of our prior ruling.
ISSUE:
Whether the monies paid to the importer by the manufacturer were paid pursuant to a formula.
LAW AND ANALYSIS:
As you know, transaction value, the preferred method of appraisement, is defined in section 402(b) of the TAA as the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus enumerated additions. There is no dispute that transaction value is the proper method of appraisement in this case.
As previously stated, in HRL 543983, Customs held that the monies paid by the purchaser to the manufacturer for the molds were part of the price actually paid or payable for the imported merchandise. The importer, in its protest submission dated September 29, 1988, agrees with this conclusion.
However, the importer disagrees with Customs conclusion that the purchase agreement does not constitute a formula under 19 CFR 152.103(a)(1) through which the rebates could be taken into account in determining the appraised value of the merchandise. 19 CFR 152.102(a)(1) states the following:
In determining the transaction value, the price actually paid or payable will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula, such as the price in effect on the date of export in the London Commodity Market.
The importer cites several Headquarters Letter Rulings (HRL) that it contends supports its position that its contract contains a formula. One ruling that was decided under 19 CFR 152.103(a)(1) is HRL 543094, dated March 30, 1984. In HRL 543094, the sales contracts between the importer and the manufacturers provided that if the NT dollar was revalued or devalued in relation to the U.S. dollar by more that a certain percentage, then the importer and the manufacturers would equally split the net cost of the change.
Midway through the importations the NT dollar was devalued. Subsequently, several months after the importations ended, the manufacturers issued refunds to the importer. Customs held that in the contracts the parties had established a price that was arrived at pursuant to a formula. Therefore, the adjustments to the invoice price that were made pursuant to those contracts did not constitute rebates or decreases in the price actually paid or payable for the imported merchandise. Similar results were reached in HRL's 543252, dated March 30, 1984, and 543089, dated June 20, 1984, both involving formulas based on currency fluctuations.
The importer also cites HRL 542701 (TAA #47), dated April 28, 1982, to support its argument that the presence of a firm price for imported merchandise need not be known at importation for a formula to be applicable. In TAA #47, the importer purchased a substance that was further processed in the U.S. into pharmaceutical tablets. Under the pricing agreement between the importer and the exporter, a specific base price was agreed upon for the imported chemical. If the importer increased its resale price in the U.S. by a certain percentage, the exporter's sales price for all of the imported chemical in the importer's inventory would be retroactively increased by the same percentage. The same adjustment procedure was utilized if the importer's resale price fell below a certain level.
The importer in TAA #47 claimed that transaction value was not applicable in an effort to avoid a result in which increases in the price would be deemed as proceeds of subsequent resale under section 402(b)(1)(E) of the TAA; while the decease in price would not be taken into account because of the Vanik Amendment.
In TAA #47, Customs examined whether a the contract contained a formula under 19 CFR 152.103(a)(1) and stated the following:
In situations in which the price paid or payable is determined pursuant to a formula, a firm price need not be known or ascertainable at the time of importation, although it is necessary for the formula to be fixed at that time so that a final sales price can be determined at a later time on the basis of some future event or occurrence over which neither the seller not the buyer have any control. (emphasis added)
Although Customs held that the monies involved in TAA #47 were proceeds of subsequent resale, rather than monies involved in a formula, the underlined language quoted above clearly is relevant to the issue in the present case. That is, a formula in a contract can be acceptable under transaction value if it is a formula that is based on a future event over which neither the seller nor the buyer has any control. Clearly, HRL's 543094, 543252, and 543089 cited previously concerning currency conversion formulas meet this criterion.
In addition, 19 CFR 152.103(a)(1) provides the price in effect on the date of export in the London Commodity Market as an example of an acceptable means of arriving at the price actually paid or payable for the imported merchandise. The price in the London Commodity market is clearly an objective standard over which neither the buyer nor the seller has control.
The arrangement in the present case does not meet these requirements. The amount that the manufacturer will refund the importer is contingent upon how many items the importer orders. Thus, the amount to be refunded is clearly within the importer's control. Moreover, the alleged "formula°" established in the contract was never fully utilized because the importer did not order the requisite number of items. Thus, we hold that the contract did not establish a formula that reduced the price actually paid or payable under 19 CFR 152.103(a)(1).
Rather, the payments must be examined in the context of the definition of transaction value. As previously discussed, transaction value is defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States" plus enumerated statutory additions (emphasis added). In this case, the first shipments of the hurricane lamp bases occurred between April 17, 1987, and May 1, 1987. At the time that this merchandise was exported, the price actually paid or payable for the merchandise was the unit price for the goods plus the $77,000 payment for the mold. No additional hurricane lamp bases were ordered until August 4, 1987.
Similarly, the crystal bowls that were imported on May 18 and 19, 1987, were shipped April 24 through 28, 1987. The price actually paid or payable for the crystal bowls when sold for exportation to the U.S. was the unit price of the bowls plus the $86,350 payment for the mold. No additional crystal bowls were ordered until August 4, 1987.
Since the cost of the molds will be included in the dutiable value of the merchandise entered in May 1987, the price actually paid or payable for the merchandise that was entered in September and October, 1987, should have been the unit price of the respective items.
Finally, one small shipment of hurricane lamp bases and one shipment of crystal bowls, which were part of the initial orders for the merchandise, were shipped to Canada during the time (April) that the remaining merchandise was shipped to the U.S. Given the close time frame of these shipments, and the link with the purchase orders, the $77,000 and $86,350 mold costs should be reduced by an apportioned amount for the merchandise that was exported to Canada.
HOLDING:
The arrangement contained in the mold purchase orders between the importer and the manufacturer does not constitute a formula under 19 CFR 152.103(a)(1). The full amount of the mold cost, with minor adjustments to account for the merchandise that went to Canada rather than to the U.S., should be included in the first entries of the merchandise that were made in May 1987.
You are directed to deny the protest. A copy of this decision should be attached to Form 19, Notice of Action, to be sent to the protestant.
Sincerely,
JOHN DURANT
John Durant, Director
Commercial Rulings Division