VAL CO:R:C:V 544875 GG
District Director
U.S. Customs Service
One Virginia Avenue
Wilmington, North Carolina 28401
RE: Application for Further Review of Protest No. 1512-91100054;
dutiability of foreign inland freight charges
Dear Sir:
This is in response to the protest referenced above, which
was sent to this office for further review.
FACTS:
The protestant, xxxx xxxxxx xxxx., imported Christmas
ornaments and foil paper articles on November 9, 1990. The
commercial invoice listed the price under two sales terms: ex-
factory and F.O.B. The ex-factory price and F.O.B. price of each
individual article were given, as well as ex-factory and F.O.B.
totals. The F.O.B. price was the ex-factory price plus charges
for a buying commission and shipping. The terms of sale, as
listed on the invoice, were "F.O.B. Japan".
The merchandise was appraised under transaction value, at
the F.O.B. invoice price less the buying commission. The entry
was liquidated on March 29, 1991; the protestant timely protested
the liquidation, arguing that the merchandise was sold at an ex-
factory price and therefore the foreign inland freight charges
should have been deducted. To support its position, the
protestant indicates that the commercial invoice shows an ex-
factory price and separately identifies shipping charges, which,
it contends, are foreign inland freight charges. Also, the
protestant states that the bill of lading reflects through
shipment with lading in Tokyo and discharge in Savannah.
However, the protestant appears to be in error on this last point
as the bill of lading and the entry summary indicate that the
merchandise was laden in Kobe.
ISSUE:
Whether the foreign inland freight charges should have been
excluded from the transaction value of the imported merchandise?
LAW AND ANALYSIS:
The primary basis of appraisement under the valuation
statute, section 402 of the Tariff Act of 1930, as amended by the
Trade Agreements Act of 1979 (TAA), is transaction value. This
is defined in section 402(b) of the TAA as "the price actually
paid or payable for the imported merchandise when sold for
exportation to the United States," plus amounts for packing costs
which are incurred by the buyer, any selling commission, the
value of any assist, any royalty or license fee the buyer is
required to pay as a condition of the sale, and the proceeds of
any subsequent resale that accrue to the seller.
The price actually paid or payable is defined in section
402(b)(4)(A) of the TAA as the "total payment, . . . made, or to
be made, for the merchandise by the buyer to . . . the seller."
The price actually paid or payable does not include 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. Deductions may be made for
costs incurred for transportation of the merchandise after
importation, if such costs are identified separately from the
price actually paid or payable.
Foreign inland freight charges are considered to be incident
to the international shipment of merchandise, and are not added
to the price actually paid or payable by the buyer to the seller
for imported merchandise, when the sale was based on an ex-
factory price. Section 152.103 (a)(5)(i) of the Customs
Regulations (19 CFR 152.103 (a)(5)(i)). An ex-factory price is
the cost of the goods at the seller's loading dock and usually
includes export packing, but no other costs. It does not include
foreign inland freight costs. See Incoterms, 1980 edition; and
19 CFR 152.103 (a)(5)(i). The existence of an ex-factory sale
must be established for the importer to be able to exclude, under
this provision, foreign inland freight charges from the price
actually paid or payable.
The protestant argues that the commercial invoice from the
seller provides clear evidence that the imported merchandise was
sold on an ex-factory basis, because it lists an ex-factory price
and a separate shipping charge. However, the bottom-line total
on the invoice, and the terms of sale, are "F.O.B. Japan". This
throws the validity of the alleged ex-factory sale into question.
In situations where an ex-factory price is asserted, but
where foreign inland freight charges are included in the same
invoice as the price, Customs requires a written explanation from
the importer stating that the foreign inland freight charges were
charged separately as part of an accomodation agreement between
the buyer and seller. See HRL 543744, dated July 30, 1986; and
Customs Telex UNCLAS 6689, dated July 17, 1985. This information
is necessary to overcome the presumption - raised by the
existence of the foreign inland freight charges on the invoice -
that the sale was on other than ex-factory terms. The protestant
has not provided such an explanation. Consequently, an ex-
factory sale has not been conclusively established. Customs
correctly appraised the merchandise using the F.O.B. Japan price.
A sale on F.O.B. terms means that the price includes all
costs of bringing the merchandise alongside, and lading it on
board, the exporting carrier. See Incoterms, 1980 edition.
Foreign inland freight charges will be one of those costs, in
instances where foreign inland freight charges are incurred. By
regulation, when the price actually paid or payable for imported
merchandise includes a charge for foreign inland freight, as it
does here in this F.O.B. sale, then that charge will be part of
the transaction value to the extent it is included in the price.
It is immaterial that the freight charges were itemized
separately on the invoice. Section 152.103 (5)(ii) of the
Customs Regulations (19 CFR 152.103 (5)(ii)). However, charges
for foreign inland freight may be considered incident to the
international shipment of that merchandise, and thus excludable,
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.
Id. A sale for export and placement for through shipment to the
United States is established by means of a through bill of
lading. Section 152.103 (5)(iii) of the Customs Regulations (19
CFR 152.103 (5)(iii)). The bill of lading presented by the
protestant reflects shipment of the merchandise from Kobe to
Savannah; it does not show through shipment from Osaka, where the
factory apparently is located, to Savannah. The protest is
denied because there is no evidence of through shipment from the
manufacturing site to the United States.
HOLDING:
The "shipping charges" identified by the protestant as
foreign inland freight charges were properly included in the
transaction value of the imported merchandise, because the sale
for exportation was based on a F.O.B., not an ex-factory, price,
and no through bill of lading was furnished by the importer.
You are directed to DENY this protest in full. A copy of
this decision should be attached to the CF 19, Notice of Action,
and sent to the protestant to satisfy the notice requirement of
section 174.30(a) of the Customs Regulations.
Sincerely,
John Durant
Director, Commercial
Rulings Divison