VAL CO:R:C:V 545271 CRS
Kathleen M. Murphy, Esq.
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, IL 60661-3693
RE: Sale for exportation; price actually paid or payable; three-tiered distribution system; Nissho Iwai; warm-up suits
Dear Ms. Murphy:
This is in reply to your letter of March 24, 1993, on behalf
of ******************* (the "importer") in which you requested a
ruling on whether the appraised value of imported garments should
be based on the manufacturer's sale price to the middleman, or the
latter's price to the importer. You have requested, and been
accorded, confidential treatment in respect of the pricing and
other business information contained in your submission. We regret
the delay in responding.
FACTS:
The importer sources garments from manufacturers in a number
of different countries in Asia. In furtherance of these activities
the importer will use the services of a ********* trading company,
or middleman (the "middleman"), who will purchase merchandise from
foreign manufacturers and resell it to the importer.
The instant ruling request concerns men's two-piece nylon
warm-up suits manufactured in and imported from ******** and
*************** and/or ******. All shipments will be entered
through the port of Los Angeles. The middleman will purchase the
warm-up suits from ********** and ********* manufacturers (the
"manufacturer(s)"). However, you state that the *********
manufacturer has subsidiaries in ************** which may actually
produce the warm-up suits. These companies (the "related
companies") are related persons as defined by 19 U.S.C. 1401a(g).
You have advised that the middleman and the manufacturers are not
related.
Copies of purchase contracts between the importer and the
middleman were enclosed as Attachments A and B to your submission
of March 24th. One relates to warm-up suits ordered from the
********* manufacturer; the other, to similar merchandise ordered
from the ********* manufacturer. The contracts provide that the
warm-up suits will be made according to the importer's
specifications and in conformity with U.S. government standards,
and will be tagged with the importer's label. In addition, the
contracts state that the manufacturer has access to quota and will
provide the necessary textile visa in order to secure entry of the
garments into the U.S.
Enclosed with your submission, as Attachments C and D, were
copies of purchase orders between the middleman and the
manufacturers which state that the merchandise is to be shipped to
the importer. The purchase orders also state that the
manufacturers will provide the importer with a specification sample
and a pre-production sample.
The purchase contracts between the importer and the middleman
provide for a unit price per garment of *****. The purchase orders
between the middleman and the manufacturers provides for a per
garment price of $*****. There is no a third price between the
********* manufacturer and its related companies. It is your
contention that transaction value should be based on the price
between the middleman and the sellers.
ISSUE:
The issue presented is whether, for the purposes of
determining the transaction value of the instant warm-up suits, the
sale for exportation occurred between the middleman and the
manufacturers, or between the middleman and the importer.
LAW AND ANALYSIS:
Merchandise imported into the United States is appraised in
accordance with section 402 of the Tariff Act of 1930, as amended
by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a). The
preferred method of appraisement is transaction value, which is
defined as the "price actually paid or payable for merchandise when
sold for exportation to the United States," plus certain enumerated
additions. 19 U.S.C. 1401a(b)(1). For the purposes of this
ruling we have assumed that transaction value is the appropriate
basis of appraisement.
Until recently it has been the policy of the Customs Service
to appraise imported merchandise under transaction value based on
the sale which most directly caused merchandise to be exported to
the United States. Brosterhous, Coleman & Co. v. United States,
737 F.Supp. 1197 (Ct. Int'l Trade 1990).
However, in Nissho Iwai American Corp. v. United States, 982
F.2d 505 (Fed. Cir. 1992), the Court of Appeals for the Federal
Circuit reviewed the standard for determining transaction value
when there is more than one sale which may be considered as being
for exportation to the United States. In so doing, the court
stated that Customs' policy of basing transaction value on the sale
which most directly caused the merchandise to be exported to the
U.S. proceeded from an invalid premise. Nissho Iwai, 982 F.2d 505,
511.
Instead the court in Nissho reaffirmed the principle of E.C.
McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that a
manufacturer's price, rather than the middleman's price, is valid
so long as the transaction between the manufacturer and the
middleman falls within the statutory provision for valuation. In
reaffirming the McAfee standard the court stated that in a three-tiered distribution system:
The manufacturer's price constitutes a viable transaction
value when the goods are clearly destined for export to
the United States and when the manufacturer and the
middleman deal with each other at arm's length, in the
absence of any non-market influences that affect the
legitimacy of the sales price....[T]hat determination can
only be made on a case-by-case basis.
Id. at 509. See also, Synergy Sport International, Ltd. v. United
States, 17 C.I.T. ___, Slip Op. 93-5 (Ct. Int'l. Trade January 12,
1993).
As a general matter in situations of this type, Customs
presumes that the price paid by the importer is the basis of
transaction value. However, in order to rebut this presumption the
importer must, in accordance with the court's standard in Nissho,
provide evidence that establishes that at the time it purchased, or
contracted to purchase, the imported merchandise the goods were
"clearly destined for export to the United States" and that the
manufacturer and middleman dealt with each other at "arm's length."
In regard to the instant transaction you have advised that the
middleman and the manufacturers are not related and that they deal
with each other on an arm's length basis. Moreover, you have
provided evidence that the merchandise is destined for the U.S.
You have submitted purchase contracts between the importer and the
middleman which indicate that the warm-up suits are designed and
manufactured according to the importer's specifications. The
merchandise is tagged with the importer's label and sent directly
from the manufacturer to the importer. Finally, the purchase
contracts indicate that the manufacturer has access to the
quota/visa required to ensure entry of the merchandise into the
U.S.
In addition, you have submitted copies of purchase orders
between the middlemen and the manufacturers which reflect the fact
that the warm-up suits will be shipped by the manufacturers
directly to the importer. These purchase orders also state that
the manufacturers are to provide the importer with specification
and pre-production samples of the garments. In view of the
evidence presented, the sale between the middleman and the foreign
manufacturers was an arm's length sale, and the merchandise was
sold "for exportation to the United States" within the meaning of
19 U.S.C. 1401a(b)(1).
HOLDING:
Based on the facts presented, the price between the
manufacturers and the middleman constitutes the price actually paid
or payable for the purposes of determining the transaction value of
the instant warm-up suits.
Sincerely,
John Durant, Director
Commercial Rulings Division