VAL CO:R:C:V 544513 VLB
District Director
U.S. Customs Service
880 Front Street
Room 5-S-9
San Diego, California 92188
RE: Request for Internal Advice on Sale for Exportation
Involving the Importation of Mexican Cement; IA 28/90
Dear Sir:
This is in response to a Request for Internal Advice (IA
28/90), dated March 13, 1990, submitted by ----------------------
--------. (hereinafter referred to as "S--------"). The
internal advice involves the appraisement of cement produced in
Mexico by parties related to S--------.
FACTS:
S--------, through counsel, states that it is a corporation
organized under the laws of Texas. S-------- is an indirect
subsidiary of ------------------------------------., a -------
corporation (hereinafter referred to as "C----"). C---- owns or
controls several cement mills in Mexico, including the mills that
produce the imported cement.
S-------- further explains that all cement exported from
Mexico is purchased by C-------------------------------.
(hereinafter referred to as "CI--") from the mills. CI-- is a
Mexican export trading company. CI-- sells all cement destined
for the U.S. market to --------------------- (hereinafter
referred to as "T------"), a -------------- corporation that is
related to S--------. An agreement between CI-- and T------
provides for CI-- to sell to Trading for delivery at the U.S. -
Mexican border, cement required by T------ to fulfill its
customer orders. The terms of the sale are C&F-mill or C&F-
terminal terms. Thus, according to counsel title passes to
T------ when the merchandise is delivered to the export carrier
at the mill or at the terminal.
T------ then "imports" the cement and sells it to S--------,
although counsel states that T------ carries on no activities in
the U.S., and has no physical presence in the U.S. S-------- is
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the importer of record and clears the merchandise through
Customs. Counsel states that "title to cement sold to S--------
by T------ passes to S-------- instantaneously after its
acquisition by T------ at the Mexico - U.S. border". The terms
of the T------ to S-------- sale is F.O.B.-midbridge.
Finally, counsel explains that CI-- and S-------- each
operate terminal facilities. However, T------ does not have
terminal facilities. From the time the cement is loaded on
board the truck or the rail carrier that will carry it to the
U.S., counsel states that the cement is segregated from other
merchandise and is destined for exportation to the U.S. without
contingency of diversion. This usually takes place at the mill,
unless the mill is not equipped with rail-car sidings. In those
situations, the cement is trucked from the mill to a rail
terminal operated by CI-- and reloaded on a rail car.
Counsel contends that under this set of facts, the appraised
value of the imported merchandise should be based on the sale
between CI-- and T------, less included foreign inland freight,
terminal and brokerage charges.
ISSUES:
(1) Whether the transaction between CI-- and T------ or the
transaction between T------ and S-------- established the price
actually paid or payable for the merchandise when it was sold for
exportation to the U.S.
(2) Whether the foreign inland freight can be deducted from
the price actually paid or payable to arrive at the appraised
value of the merchandise.
LAW AND ANALYSIS:
As you know, transaction value, the preferred method of
appraisement, is defined in 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) as the "price actually paid or payable for the
merchandise when sold for exportation to the United States" plus
enumerated additions.
The "price actually paid or payable" is defined in section
402(b)(4)(A) of the TAA as "the total payment (whether direct or
indirect, and exclusive of any costs, charges, or expenses
incurred for transportation, insurance, and related services
incident to the international shipment of the merchandise. . .)
made, or to be made, for the imported merchandise by the buyer
to, or for the benefit of, the seller.
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Counsel contends that transaction value is the proper method
of appraisement for the imported cement. Moreover, as previously
mentioned, counsel takes the position that the only sale that
qualifies as a sale for export to the U.S. is the sale between
CI-- and T------. Counsel states that this sale "is without
question a sale for exportation to the United States since it is
the transaction in which the goods are delivered to and title
passes to the importer, and the means by which the importer, if
it wished, would become entitled to take physical delivery of the
cement undergoing importation".
Further, counsel takes the position that the sale from
T------ to S-------- is not a sale for exportation to the U.S.,
it is a sale which takes place within the U.S. S-------- cites
Headquarters Ruling Letter 543789, dated February 17, 1987, to
support its contentions. In HRL 543789, the importer was a
Canadian corporation that purchased merchandise in several
foreign countries for resale to customers in the U.S. The
merchandise was delivered directly to a public warehouse facility
in the U.S. where it was prepared for subsequent delivery to the
ultimate purchasers that the importer usually contracted with
prior to the importation of the goods. The merchandise was
sometimes held in inventory.
In HRL 543789, the importer retained total control of all
aspects of the transaction with regard to the merchandise,
including bearing the risk of loss from the time of importation
into the U.S. until delivery to the ultimate purchaser. The
importer was responsible for the payment of ocean freight,
insurance charges, and inland transportation subsequent to
importation.
Customs held that the sale for exportation to the U.S. for
the basis of transaction value was the sale between the foreign
manufacturer and the importer. The subsequent sales between the
importer and the ultimate U.S. purchasers were domestic sales and
thus, could not serve as the "price actually paid or payable" for
the merchandise when sold for exportation to the U.S.
The import specialist and national import specialists' (NIS)
views on this issue are that the sale between CI-- and T------ is
an in-transit sale. Further, transaction value cannot be based
on an in-transit sale. Therefore, the NIS reaches the conclusion
that the CI--/T------ sale cannot be the basis for transaction
value.
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Alternatively, in the NIS's opinion, S-------- is the firm
that was intended as the ultimate importer from the first step in
the series of transactions. The NIS considers CI-- to be the
foreign seller, and Trading is CI--'s selling agent. Thus, the
price that S-------- pays to T------ includes a selling
commission. The price between S-------- and T------ can be used
as a starting point for transaction value under these
circumstances.
We agree with the NIS's assessment that T------ is operating
as CI--'s selling agent. A selling agent is a person who acts
for the account of the seller. The selling agents generally
seek customers, collects orders, and in some cases the agent may
arrange for storage and delivery of the goods.
In this case, the arrangements provide for CI-- to "sell"
cement to T------ for delivery at the U.S. - Mexico border; and
T------ is to "sell" cement to S-------- for delivery at the U.S.
border. As the importer states "[t]itle to cement sold to S-----
--- by T------ passes to S-------- instantaneously after its
acquisition by ------- at the Mexico - U.S. border.
Thus, in reality the sale of the cement occurs between C---
and S--------. T------ acts as an intermediary on behalf of
CI-- for all cement that is destined for the U.S. The fact that
T------ may take title to the merchandise for a split second does
not negate a finding that T------ is acting on behalf of CI--.
The importer itself states that in the transaction between CI--
and T------ "the goods are delivered to and title passes to the
importer, and the means by which the importer, if it wished would
become entitled to take physical delivery of the cement
undergoing importation". See, page 5 of March 13, 1990
submission. Clearly, T------ cannot sell the cement to a U.S.
customer of T------'s choice.
Moreover, the CI-- invoices that are included in the file,
list S------ as the purchaser of the merchandise. Any amount
that T------ retains from the sum that S------ remits, over the
"price" that CI-- charged T------, is a selling commission.
Under section 402(b)(1)(B) of the TAA any selling commission
incurred by the buyer (Sunbelt) with respect to the imported
merchandise is added to the price actually paid or payable to
arrive at the transaction value of the goods.
Finally, we disagree with counsel's contention that HRL
543789 is applicable in this case. In HRL 543789, the Canadian
importer had the risk of loss from the time of importation into
the U.S. until delivery to the ultimate U.S. purchaser.
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That is not the case in the present situation. Although counsel
calls T------ the importer, it is actually S-------- that is the
importer of record and the party that has title when the goods
are entered into the U.S. There is no domestic sale between
T------ and S-------- under these circumstances.
As stated previously, all of the parties in this transaction
are related as the term is defined in section 402(g) of the TAA.
Therefore, the proposed transaction value must meet either the
"circumstances of the sale" test or the test value method for
determining the acceptability of a price in a related party
transaction. This determination is made on a case-by-case basis
by the Customs import specialist reviewing the entries. The
import specialist can request further proof that the proposed
transaction values are acceptable under one of the statutory
tests.
For purposes of addressing the freight issue, we are
assuming that transaction value will be the proper method of
appraisement.
Counsel contends that the transaction value of the
merchandise should not include all freight, terminal, export
clearance and brokerage charges from the mill to the point of
delivery, the U.S. - Mexican border. Counsel's argument is that
these charges are incidental to the international movement of the
goods.
As previously stated, the price actually paid or payable for
the imported merchandise is the total price paid to the seller,
exclusive of any costs, charges, or expenses incurred for
transportation, insurance, and related services incident to the
international shipment of the merchandise from the country of
exportation. In this case, S-------- is purchasing F.O.B.
Midbridge.
In T.D. 84-235 (49 FR 46886), Customs amended 19 CFR
152.103(a)(5) covering the dutiability of foreign inland freight
and other services incident to the international shipment of
merchandise. The applicable provision of the amended
regulation, 19 CFR 152.103(a)(5)(ii) contains the following
language:
Sales other than ex-factory. As a general rule, in
those situations where the price actually paid or
payable for imported merchandise includes a charge for
foreign inland freight, whether or not itemized
separately on the invoices or other commercial
documents, that charge will be part of the transaction
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value to the extent included in the price. However,
charges for foreign inland freight and other services
incident to the shipment of the merchandise to the
United States may be considered incident to the
international shipment of that merchandise within the
meaning of section 152.102(f) if they are identified
separately and they occur after the merchandise has
been sold for export to the United States and placed
with a carrier for through shipment to the United
States.
Subsection (iii) of the regulation requires that a through
bill of lading be presented to the District Director to meet the
requirement in (ii) that a sale for export and placement for
through shipment have occurred. Only in those situations where
it is impossible to ship merchandise on a through bill of lading
will other documentation be accepted in lieu of a through bill of
lading.
In the present case, counsel states that a through bill of
lading is issued either at the rail terminal or at the mill when
the mill is equipped with rail loading facilities. This document
covers shipment to a rail terminal in San Diego.
In those cases where the mill is equipped with rail loading
facilities and the merchandise is placed in a car at the mill,
and arrives in the same car in the U.S., the requirements of T.D.
84-235 may be met. However, the import specialist must make the
final determination on this issue upon review of the
documentation.
In those situations where the mill is not equipped with rail
loading facilities and the merchandise must be transported to a
rail terminal, the requirements of 19 CFR 152.103(a) may be
harder to meet because two carriers are involved. Here again,
the Import Specialist must make the determination on the
dutiability of the freight and related charges after review of
the documentation.
Finally, counsel states that the merchandise may sometimes
be shipped by truck from the mill to the U.S. destination. In
this case if the shipment is in the hands of a single carrier
that can provide the proper documentation, then the foreign
inland freight and related charges may be excluded from the
transaction value of the merchandise under 19 CFR 152.103(a).
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HOLDINGS:
(1) The sale for exportation for purposes of transaction
value occurs between CI-- and S-------- with T------ acting as a
selling agent for CI--. An amount that S-------- pays T------,
over and above what T------ remits to CI-- will be considered to
be a selling commission.
(2) The requirements for the exclusion of foreign inland
freight charges and related fees are set out in 19 CFR
152.103(a)(5). The Import Specialist must determine whether the
requirements of the regulation have been met after review of the
documentation.
Sincerely,
John Durant, Director,
Commercial Rulings Division