VAL CO:R:C:V 544646 ML
District Director
Boston, Ma. 02222-1059
RE: Deductions From the Appraised Value for Freight Costs;
Application for Further Review of Protest No. XXXX
Dear Sir:
The protest was filed against your appraisement decision in
the liquidation of various entries made by Susan Bristol Inc. of
ladies' wool sweaters made in China. The protestant takes issue
with the assessment of duty which it asserts was based upon a
value which failed to reflect a deduction for charges relating to
international air freight. The merchandise was appraised
pursuant to transaction value, section 402(b) of the Tariff Act
of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19
U.S.C. 1401a(b)).
FACTS:
Susan Bristol Inc. (hereinafter referred to as the
"importer"), imported ladies' knit blouses from China. The
merchandise was manufactured by Cheong Knitting & Garment
Factory, Ltd. (hereinafter referred to as the "manufacturer")
through the China National Textiles Import & Export Corp.
Counsel for the importer stated that Archer Enterprises Ltd,
(herein after referred to as the "agent") served as the
importer's buying agent in the transaction. A buying agency
agreement has been on file in your District since 1986 and you
are satisfied that the agent is a bona fide buying agent (we note
that the Customs Protest and Summons Information Report listed
the manufacturer and seller as Archer Enterprises, and the
Production Order issued by the importer listed Archer
Enterprises/Wang Cheong Knitting & Garment Factory, Ltd. as the
vendor).
The manufacturer was contractually obligated to ship the
merchandise by sea freight, FOB Hong Kong on or before April 20,
1989. The merchandise was not sent until June 8, 1989. The
importer agreed to accept the merchandise contingent upon the
manufacturer's adherence to an "Agreement" which the parties had
entered into prior to the exportation of the merchandise.
Counsel for the importer maintains that the Agreement
entered into between the importer and the seller prior to
exportation of the merchandise provided for the delivery terms to
be changed to C&F by air for goods that were shipped 15 days
later than the agreed upon order completion date. The "Late
Delivery Agreement" obligated the seller for the cost of air
freight, with the importer crediting $.40 per piece, which
represented the cost of sea freight. Counsel notes that this
issue may involve almost all of its suppliers/sellers. The
importer has entered into agreements concerning late delivery and
they provide that the supplier bear the cost of air freight minus
an allowance for average sea freight which the importer would
have paid under FOB terms, if delivery had been timely. Counsel
notes that in some instances the suppliers have not claimed the
differential.
Counsel submitted an undated letter from Julie Nomi, Vice
President, Product Development and Sourcing, for the importer,
wherein she stated that she had negotiated and executed on behalf
of the importer, an Agreement with the buying agent regarding
purchase agreements on which the seller failed to make delivery
on or before the agreed upon delivery date plus 15 days. Under
the Agreement, if the importer agreed to accept delivery, the
seller was required to assume the cost of air freight and prepay
the air freight with the importer agreeing to grant the seller a
credit of $.40 per piece base upon the average sea freight cost.
In the instant case, the importer paid the seller the same
total amount as stipulated in the purchase agreement. The
merchandise was paid for by letter of credit. The commercial
invoice filed in support of the entry summary stated that the
invoice price was "FOB Hong Kong". The Import Specialist is of
the opinion that the late delivery arrangement is more of a
penalty or liquidated damages clause, and therefore, Customs
should not refund any duties paid.
The National Import Specialist agreed with the importer that
duties should be refunded. He asserted that the Customs broker
erroneously entered the merchandise using the FOB Hong Kong
invoice price but that the international freight charges do not
form part of the dutiable value of the merchandise because of the
pre-existing late delivery arrangement which represents, in his
opinion, a renegotiated price for the merchandise prior to
shipment.
ISSUE:
Whether the charges for air freight were included in the
price actually paid or payable for the imported merchandise.
LAW AND ANALYSIS:
Transaction value, the method of appraisement used in
connection with this importation, 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
certain enumerated additions not relevant here. This is more
specifically defined in section 402(b)(4)(A) of the TAA, as the
following:
...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 from the country of exportation to the
place of importation in the United States) made, or to
be made, for imported merchandise by the buyer to, or
for the benefit of, the seller. (emphasis added)
Counsel finds support for its position in Customs Service
Decision (C.S.D.) 83-62, (HRL 543014, dated February 15, 1983),
which involved a contract price reduced prior to shipment due to
late delivery. If the seller failed to deliver the goods in
conformity with the contract on or before the delivery date the
contract price for the goods would be reduced prior to shipment.
Customs agreed that the invoice price would be reduced prior to
shipment and would represent the transaction value for
appraisement purposes. Customs stated that in connection with
the proposed importations the price actually paid or payable
would take into consideration the price reductions as set forth.
The import specialist cites HRL's 543537, dated February 14,
1986, and 543213, dated May 23, 1984, in support of its belief
that the late delivery agreement should not be considered when
appraising the imported merchandise. HRL 543537 addressed a
reduction in the purchase price of merchandise as a result of
late delivery. In that case, the importer sought and received a
decrease in the purchase price after the date of importation.
Customs held that pursuant to section 402(b)(4)(B) of the TAA,
which states that any rebate of, or other decrease in, the price
actually paid or payable that is effected after the dated of
importation of the merchandise shall be disregarded in
determining transaction, we were precluded from considering this
decrease in the purchase price in determining transaction value.
Since the late delivery agreement in the instant case was arrived
at prior to importation, we do not find HRL 543537 to be
dispositive of the issue presented here.
In HRL 543213, Customs addressed the valuation of
merchandise subject to a Sales Confirmation between the buyer and
seller which provided that if shipment was by air freight "...the
difference between air freight and ordinary parcel post is
payable in excess of the L/C amount." A review of the record
revealed that the CIF price agreed to by the buyer and seller did
not include air freight charges but included ordinary parcel post
charges only. The parties agreed that if, as was the case, the
articles were sent by air freight, the difference between the air
freight and ordinary parcel post would be added to the original
CIF price. Customs concluded that the "price actually paid or
payable" for the articles did not include the difference between
the air freight and the parcel post charges and that no deduction
should be made for the difference between those charges.
The evidence in this case does not support finding that
price reductions were made to the price actually paid or payable.
Section 402(b)(4)(A) of the TAA provides that the price actually
paid or payable for imported merchandise does not include charges
incident to the international shipment of the merchandise. The
National Import Specialist correctly points out that an importer
is entitled to make a deduction for international freight to the
extent it was included in the price. Similarly, to the extent
that the importer could demonstrate that the late delivery
agreement adjusted the price, an adjustment to the appraised
value would be appropriate. In the instant case, the file,
contracts and late delivery agreement do not indicate that the
change in delivery terms was ever reflected as a change in the
price actually paid or payable.
In allowing for a deduction from the total payment for
actual expenses incurred for transportation, insurance and other
services incident to the international shipment of the
merchandise, section 402(b)(4)(A) of the TAA attempts to arrive
at essentially an FOB or ex-factory price for the goods subject
to appraisement. Here, the parties had a price actually paid or
payable pursuant to an initial contract. Subsequently, they
entered into a late delivery agreement, which although it was
entered into prior to exportation, the late delivery agreement
does not support finding that the price actually paid or payable
for the merchandise was ever changed. The importer stated that
the freight charges were not part of the total payment and quite
often the $.40 allowance was not even claimed by the seller. It
would, therefore, be inappropriate to make an adjustment for
freight charges since these charges do not appear to have been
reflected in the price for the merchandise.
HOLDING:
In light of the foregoing, we are unable to make an
adjustment to the transaction value for freight charges since
these charges do not appear to have been included in the price
actually paid or payable for the imported merchandise.
You are hereby directed to deny the protest in full. A copy
of this decision should be attached to the Customs Form 19 and
mailed to the protestant as part of the notice of action on the
protest.
Sincerely,
John Durant, Director