VAL CO:R:C:V 545477 CRS
District Director
U.S. Customs Service
127 North Water Street
Ogdensburg, NY 13669
RE: Internal Advice Request 52/93; canned, peeled tomatoes from Italy; transaction value
inapplicable because imported merchandise was subject to a condition or consideration for which a
value cannot be determined; deductive value
Dear Sir:
This is in reply to your memorandum of June 16, 1993, forwarded to this office under cover
of a memorandum, dated November 4, 1993, from the National Import Specialist Division, New
York, concerning the above-referenced internal advice request filed by counsel Grunfeld, Desiderio,
Lebowitz & Silverman, on behalf of Amko International Trading Inc. (Amko). This matter was also
discussed with counsel at a meeting on August 5, 1994, subsequent to which counsel made an
additional submission under cover of a letter dated September 2, 1994. We regret the delay in
responding.
FACTS:
Amko, a New York corporation, imports food products from Italy under its "Lupa " and
"Rosario" labels, including canned peeled tomatoes. The company is owned by Mr. and Mrs. Joseph
Amiglio.
In 1987, the European Community (the "EC;" now the European Union) instituted an export
promotion program under which EC exporters received rebates based on sales of tomato products
sold to third parties, i.e., to non-EC countries. The U.S. was subsequently excluded from the list of
countries to which exporters could sell tomato products and yet remain eligible to receive the rebate.
Notwithstanding, one of Amko's Italian suppliers, Giaguaro S.p.A. ("Giaguaro"), offered to sell
canned tomatoes to Mr. Amiglio at a lower price made possible by the EC export subsidy program.
However, since the rebate was not available on tomato products exported to the U.S., Giaguaro
could only offer the lower price if the transaction were structured in such a way to make it appear to
the Italian authorities that the tomatoes were being sold to a non-U.S. buyer.
Accordingly, it was arranged that Amko's tomatoes would be shipped to Tick Tock
Promotions, a Canadian company owned by Mr. Amiglio's brother-in-law and sister-in-law. Mr.
Amiglio's in-laws later established a second company, Les Aliments Lupa, to receive the tomatoes.
Eventually, however, both Tick Tock Promotions and Les Aliments Lupa were replaced by Aliments
Rosalia, an entity registered in Montreal by Mrs. Amiglio. Aliments Rosalia is not a corporation. It
has no employees, no office, no books and no records. Its address is the house of Mrs. Amiglio's
mother. However, counsel states that Amko does have a bank account and that one check has been
written on the account in connection with the importation of canned tomatoes into Canada.
When Giaguaro receives an order from Amko, it prepares an invoice to accompany the
merchandise identifying Aliments Rosalia as the buyer. Giaguaro also sends Amko a copy of the
original invoice. The tomatoes are shipped to Montreal where the Canadian broker enters the
merchandise in bond. The broker then prepares new invoices that reflect a transaction between
Aliments Rosalia and Amko, but converts the lira price on the original invoice to Canadian dollars.
With the exception of the one payment on Aliments Rosalia's account, Amko pays for the
merchandise by wire transfer. Amko pays all transportation costs, from Italy to Canada, as well as
from Canada to the U.S., by check.
Counsel contends that the tomatoes should be appraised under transaction value. In support
of this counsel states that the tomato cans bear a U.S. trademarked label on which is printed Amko's
Brooklyn address. Moreover, counsel argues that since the labels are not printed in both English and
French, the merchandise could not be sold in Canada where marking in both languages is required.
Counsel also states that the tomatoes never enter Canadian commerce, but are simply repacked for
shipment to the U.S.
In the event that transaction value is deemed to be unacceptable and deductive value is instead
determined to be the correct basis of appraisement, counsel maintains that the cost of international
freight from Italy to Canada should not be included in the appraised value of the merchandise.
ISSUE:
The issue presented is whether transaction value is the appropriate basis of appraisement for
the merchandise described above.
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 (the TAA; 19 U.S.C.
1401a). The preferred method of appraisement under the TAA is transaction value, defined as "the
price actually paid or payable for the merchandise when sold for exportation to the United States,"
plus five enumerated additions. 19 U.S.C. 1401a(b)(1). However, merchandise will be appraised
under transaction value only if, inter alia, "the sale of, or the price actually paid or payable for, the
merchandise is not subject to any condition or consideration for which a value cannot be determined
with respect to the imported merchandise." 19 U.S.C. 1401a(b)(2)(A)(ii).
Section 152.103(k)(2), Customs Regulations (19 C.F.R. 152.103(k)(2)), provides guidance
with respect to the types of conditions or considerations that rule out the use of transaction value.
The following three examples are cited.
(I) Interpretative note 1. The seller establishes the price of the imported merchandise
on condition that the buyer also will buy other merchandise in specified quantities.
(ii) Interpretative note 2. The price of the imported merchandise is dependent upon
the price or prices at which the buyer of the merchandise sells other merchandise to
the seller of the merchandise.
(iii) Interpretative note 3. The price of the imported merchandise is established on
the basis of a form of payment extraneous to the merchandise, such as where the
merchandise is to be further processed by the buyer, and has been provided by the
seller on the condition that he will receive a specified quantity of the finished
merchandise.
19 C.F.R. 152.103(k)(2)(I)-(iii). These examples illustrate that transaction value will be
inapplicable if the price of imported merchandise is dependent on an event whose worth or value
cannot be ascertained.
Counsel maintains that transaction value is the appropriate basis of appraisement in this case.
Nevertheless, the record indicates that the price of the imported merchandise was based on the
transaction being structured as a sale to Canada, rather than as a sale to the U.S. Counsel has advised
that Giaguaro offered to sell canned tomatoes to Mr. Amiglio at a lower price made possible by the
EC export subsidy program. However, the rebate was not available on tomato products exported
to the U.S., thus Giaguaro could offer the lower price only if the transaction were structured in such
a way to make it appear to the Italian authorities that the tomatoes were being sold to a non-U.S.
buyer. As a result, Amko formed Aliments Rosalia to act as the buyer of the canned tomatoes.
The entry documentation indicates that the transaction was indeed structured as a sale to
Canada. Attached as Exhibit E to counsel's submission are invoices and other documents submitted
to Revenue Canada, Customs and Excise, in connection with the importation of canned tomatoes into
Canada. For example, one of the documents is a Canadian Customs invoice for 3,150 cartons of
whole peeled tomatoes in 3,400 gram cans, and 2,400 cartons of whole peeled tomatoes in 3,000
gram cans. The invoice bears "date of direct shipment to Canada" of February 2, 1992, and identifies
Giaguaro as the "vendor" and Tick Tock Promotions as the "purchaser." Another invoice for canned
tomatoes names Giaguaro as the vendor, and Les Aliments Lupa as the purchaser, with a direct
shipment date to Canada of June 14, 1992. Yet another invoice for merchandise shipped directly to
Canada on June 27, 1992, records Giaguaro as being the seller, Les Aliments Lupa as the buyer, and
Tick Tock Promotions as the consignee. As a final example, a Canadian Customs invoice for canned
tomatoes shipped directly to Canada on December 21, 1992, identifies Giaguaro as the seller and
Aliments Rosalia as the buyer. Similarly, bills of lading indicate that the tomatoes were shipped by
Giaguaro, through the port of Naples, to Aliments Rosalia for delivery at the port of Montreal.
Moreover, billing statements issued by the Canadian broker are addressed to Aliments Rosalia, Tick
Tock Promotions and Les Aliments Lupa.
The evidence presented therefore indicates that the sale of, or the price actually paid or
payable for, the imported merchandise was subject to a condition or consideration for which a value
cannot be determined, viz., the seller establishing a lower price on condition that the buyer agree to
structure the transaction as a sale to Canada. Consequently, the use of the transaction value method
is precluded in accordance with section 402(b)(2)(A)(ii) of the TAA.
If imported merchandise cannot be appraised on the basis of transaction value, it will be
appraised in accordance with the remaining methods of valuation, applied in sequential order. 19
U.S.C. 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are: the
transaction value of identical merchandise or the transaction value of similar merchandise (19 U.S.C.
1401a(c)); deductive value (19 U.S.C. 1401a(d)); computed value (19 U.S.C. 1401a(e)); and
the "fallback" method (19 U.S.C. 1401a(f)).
Both the transaction value of identical merchandise and the transaction value of similar
merchandise are based on sales of merchandise, at the same commercial level and in substantially the
same quantity, exported to the United States at or about the same time as that being appraised. 19
U.S.C. 1401a(c). Identical merchandise is merchandise that is in all respects identical to the
merchandise being appraised and was produced in the same country and by the same person as that
being appraised. In the event that merchandise of this description cannot be found, then identical
merchandise produced in the same country but by another person can be used instead. 19 U.S.C.
1401a(h)(2). Similar merchandise is merchandise that is produced in the same country and by the
same person as the merchandise being appraised, is like that merchandise in characteristics and
component material, and is commercially interchangeable therewith. If this does not exist then similar
merchandise produced by another person can be substituted. 19 U.S.C. 1401a(h)(4). However,
the transaction value of identical or similar merchandise must be fully acceptable under section 402(b)
of the TAA in order to be applied under section 402(c). T.D. 91-15, 25 Cust. B. & Dec, 31, 33. In
this instance, neither the transaction value of identical merchandise, nor of similar merchandise,
produced by the same person is acceptable under section 402(c), since it is not fully acceptable under
section 402(b).
In regard to the transaction value of identical or similar merchandise produced in the same
country but by another person, we understand that other importers of Italian canned tomatoes have
structured their transactions in a similar fashion. Accordingly, it may be impossible to establish either
a transaction value of identical or similar merchandise that would be acceptable under section 402(b).
In this event the use the transaction value of identical or similar merchandise under section 402 will
be precluded. Based on the information presented we consider it unlikely that a transaction value of
identical or similar merchandise can be determined.
The next potentially applicable method of appraisement is deductive value. Under the
deductive value method, merchandise is appraised on the basis of the price at which it is sold in the
U.S. in the greatest aggregate quantity at or about the time of importation. Provided the merchandise
is not further processed, the unit price at which imported merchandise is sold in the greatest aggregate
quantity is defined as the unit price at which it is sold to unrelated persons at the first commercial
level after importation. 19 U.S.C. 1401a(d)(2)(B). The canned tomatoes imported by Amko are
not further processed.
The price determined under section 402(d) of the TAA is to be reduced by an amount equal
to the following:
(I) any commission usually paid or agreed to be paid, or the addition usually made
for profit and general expenses, in connection with sales in the United States of
imported merchandise that is of the same class or kind, regardless of the country of
exportation, as the merchandise concerned;
(ii) the actual costs and associated costs of transportation and insurance incurred with
respect to international shipments of the merchandise concerned from the country of
exportation to the United States;
(iii) the usual costs and associated costs of transportation and insurance incurred with
respect to shipments of such merchandise from the place of importation to the place
of delivery in the United States, if such costs are not included as a general expense
under clause (I);
(iv) the customs duties and other federal taxes currently payable on the merchandise
concerned by reason of its importation, and any Federal excise tax on, or measured
by the value of, such merchandise for which vendors in the United States are
ordinarily liable; and
(v) (but only in the case of a price determined under paragraph (2)(A)(iii)) the value
added by processing of the merchandise after importation to the extent that the value
is based on sufficient information relating to the cost of such processing.
19 U.S.C. 1401a((d)(3)(A)(I)-(v). The deduction for profit and general expenses is to be based on
the importer's profits and general expenses, unless these are inconsistent with those reflected in sales
in the U.S. of imported merchandise of the same class and kind. In this case the deduction is to be
based on the amount for profit and general expenses usually reflected in such sales. 19 U.S.C.
1401a(d)(3)(B)(I).
Based on the information presented it is our position that deductive value is the appropriate
basis of appraisement for the merchandise imported by Amko. Counsel for Amko contends that the
deductive value of the tomatoes should not include the cost of transportation from Italy to Canada.
Pursuant to section 402(d)(3)(A)(ii) of the TAA, the deductive value of imported merchandise should
not include "the actual and associated costs of transportation and insurance with respect to
international shipments of the merchandise concerned from the country of exportation to the United
States." 19 U.S.C. 1401a(d)(3)(A)(ii). The supporting documentation in the Amko transactions
establishes that the tomatoes were exported to Canada. For purposes of section 402(d)(3)(A)(ii), the
country of exportation was Canada. Consequently, there is no authority to reduce the price
determined under section 402(d)(2) for transportation and insurance costs incurred in shipping the
tomatoes from Italy to Canada.
HOLDING:
Transaction value is inapplicable since there exists a condition or consideration for which a
value cannot be determined. Instead, the merchandise should be appraised under the deductive value
method. The price of the imported merchandise determined under section 402(d)(2) of the TAA
should not include transportation and insurance costs incurred in shipping the merchandise from
Canada to the U.S., but should include such costs to the extent incurred in shipping the merchandise
from Italy to Canada.
This decision should be mailed by your office to the internal advice requester no later than
sixty days from the date of this letter. On that date the Office of Regulations and Rulings will take
steps to make the decision available to Customs personnel vis the Customs Rulings Module in ACS,
and to the public via the Diskette Subscription Service, the Freedom of Information Act and other
public access channels.
Sincerely,
John Durant, Director
Commercial Rulings Division