VAL CO:R:C:V 544725 VLB
District Director of Customs
300 South Ferry St. Terminal Island
Room 2017
San Pedro, California 90731
RE: Currency Conversion; Application for Further Review of
Protest No. xxxxxxxxxxx
Dear Sir:
This is in response to an Application for Further Review of
the above-referenced protest.
FACTS:
You state that Brother International (hereinafter referred
to as "BIC") imports facsimile machines, as well as other
products. The purchase order for the merchandise at issue was
dated June 29, 1989, and contained a unit price of $543.80. The
purchase order also contained a the following notation: "Japanese
Yen Base Tentative Exchange Rate: Yen 125.00/US$".
The invoices that BIC submits to Customs contain F.O.B. U.S.
dollar unit values ($543.80), extensions, and sub/grand totals.
In the present case, the USD total amount was $108,760.00. You
explain that this amount is then converted to Japanese yen using
a fixed conversion rate, 125 JPY to the USD, for this entry
resulting in a total JPY value of 13,595,000. The yen amount was
then reconverted back to USD using the official conversion rate
on the date of exportation. This resulted in BIC declaring a
value of $96,252.60.
You further state that at a later date, another conversion
is made of the intermediate JPY value using a different
conversion rate, which was known in advance. It is the dollar
amount that this conversion yields that BIC actually transfers to
Brother International of Japan (hereinafter referred to as "BIC
Japan"). In this case the amount that was transferred was
$106,686.06.
- 2 -
In a letter dated August 8, 1990, the International Traffic
Manager for BIC explained the process as follows:
Brother International Corporation Piscataway N.F. (BIC
US) settles with the exporter, Brother International
Corporation Nagoya, Japan (BIC Japan), in Japanese Yen
as stipulated on the last page of the commercial
Invoice. . . .The invoices have U.S. dollar values as
well as Japanese Yen amount for our easy reference
purpose. The U.S. dollar value is converted by 125
Yen/U.S.$ as our internal administrative exchange rate,
but those dollar amounts are not the amount to be
settled with BIC Japan. As you will note. . .the
calculation for settlement is based on a forward
exchange contract. The invoice involved #57084-0 shows
total value of 13,595,000 yen which is converted by our
internal rate of 125 Yen/US$ equalling U.S.
$108,760.00. This yen amount is then calculated on the
contract rate which is in this case 127.43Yen/U.S.$.
This new calculation is the amount which is to be
settled with the exporter, stated as $106,686.06. On
the date of settlement our bank (The Mitsui Bank Ltd.)
transfers the U.S. dollar amount of $106,686.06 to the
Mitsui Bank Ltd., Nagoya, Japan. Once the Mitsui Bank
receives the money they automatically notify BIC Japan
that the money (U.S. Dollars) has been received. BIC
Japan then informs the bank as to which forward
exchange contract is to be used to convert the U.S.
Dollars into Yen. Once this is done the credit into
the BIC Japan account is for 13,595,000 Japanese Yen,
which is the agreed upon amount between the exporter
and us.
BIC contends that the appraised value of the merchandise
should be the yen amount on the invoice JPY 13,595,000 converted
using the certified yen/dollar exchange rate on the date of
exportation, which in this case was $.007080/Y yielding a result
of $96,252.60. BIC contends that once it has been established
that the transaction is in foreign currency, "it makes little
difference whether the importer actually paid $106,686.06 (Y
127.43/$) or $96,252.60 (Y 141.24/$) or some other amount for
Y13,595,000".
You argue that the invoices are U.S. Dollar invoices and
that the USD to yen and back to USD are extraneous and without
impact. However, there is a later conversion based on a formula
known in advance which represents the actual price paid for the
merchandise in U.S. dollars, and this amount, $106,686.06 is the
proper appraised value.
- 3 -
ISSUE:
What is the proper rate of conversion for the Yen amount
contained in the invoice?
LAW AND ANALYSIS:
As you know, the preferred method of appraisement is
transaction value, which is defined in section 402(b) of the
Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (19 U.S.C. 1401a(b); TAA) as the "price actually paid or
payable for the merchandise when sold for exportation to the
United States" plus enumerated statutory additions. The "price
actually paid or payable" is defined in section 402(b)(4) of the
TAA as the "total payment . . . made, or to be made, for imported
merchandise by the buyer to, or for the benefit of, the seller."
In this case, there is no dispute that transaction value was the
proper basis of appraisement.
The Statement of Administrative Action, specifically adopted
by Congress contains the following language further explaining
the term "price actually paid or payable":
The price actually paid or payable shall be considered
without regard to its method of derivation. It may be
the result of discounts or increases, or may be arrived
at through some formula, or may be the result of
negotiations.
The issue that has been raised in this case is whether the
"price actually paid or payable" was determined by the use of a
formula. Customs has consistently held that currency conversion
rates that are agreed to by the parties prior to the exportation
of the merchandise constitute valid formulas for purposes of
transaction value. See, HRL 543437, dated May 17, 1988 and HRL
543089, dated June 20, 1984.
In this case the information from BIC's International
Traffic Manager indicated that the 13,595,000 is converted by the
contract rate of 127.43Yen/U.S.$. This results in the amount of
U.S. Dollars that the BIC is required pay to BIC Japan. It
appears that the contract rate and/or the method by which the
contract rate will be calculated is known prior to the
exportation of the - 4 -
merchandise. Therefore, the contract rate of exchange
constitutes a formula for determining the price actually paid or
payable. This results in a price actually paid or payable of
$106,686.06.
HOLDING:
The proper rate of conversion is the contract rate, in this
case 127.43 Yen to the Dollar. The contract rate of exchange
constitutes a formula for determining the price actually paid or
payable. Thus, the price actually paid or payable is
$106,686.06.
You are directed to deny the protest. 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
Commercial Rulings Division