RR:IT:VA 545618 er
Port Director
Detroit, Michigan
RE: Request for Internal Advice 99/93; Price Actually Paid
or Payable; Price Adjustments; Formula; Total Payment.
Dear Sir:
This is in response to your memorandum dated November 9,
1993, accompanying a request for internal advice dated October
29, 1993, submitted by counsel on behalf of its client,
[importer]. Counsel presented an additional submission to you
dated December 3, 1993. Your memorandum and counsel's
submissions were received by this office on April 15, 1994.
Additionally, this office met with counsel on January 5, 1995.
All confidential information appearing in this decision is
bracketed and will be deleted from the published version. We
regret the delay in responding.
FACTS:
[The importer] contracts to purchase motor vehicles from
[seller]. The subject entries were made between January 1, 1987
and December 31, 1989. At that time [seller] and [importer] were
related parties because [importer] owned greater than 5 percent
of the outstanding stock of [seller].
Two agreements are at issue in this matter: the United
States Distribution Agreement, as amended on October 7,
1985("USDA"); and the Memorandum of Understanding dated April 5,
1987, to amend the USDA.
The means of determining the prices for the imported
vehicles was governed by Clause 7 of the USDA which provides that
the prices charged by [seller] to [importer] for [seller's]
Products will not be higher than the prices charged to [third
party in U.S. related to seller ("third party")] for similar
[seller's] Products, taking into account all discounts, rebates
or other sales price adjustments. Under the USDA, tentative
prices for the imported vehicles are negotiated [].
This pricing mechanism is the means of protecting
[importer's] margin. However, the actual final price for the
imported merchandise is arrived at through negotiations that may
continue after the merchandise is imported into the United
States. These negotiations take into account []. Thus, while a
"price" is estimated at the time of importation, that price may
be increased or decreased subsequent to importation.
According to counsel, in 1988 [importer] paid certain
amounts to [seller] as a result of "renegotiated price changes"
with respect to vehicles purchased by [importer]. Customs took
the position that the payments made by [importer] to [seller]
were retroactive price adjustments which are part of the
transaction value of vehicles imported by [importer] from
[seller] between January 1, 1987 and December 31, 1989.
The second agreement, the Memorandum of Understanding,
pertains to the "incentive program rebates" which were paid by
[seller] to [importer] between 1988 and 1990 with respect to
vehicles purchased by [importer] from [seller]. The Memorandum
of Understanding provides that [seller] agrees to participate
with [importer] in the funding of certain sales incentives for
the sale by [importer] in the U.S. of [seller's] passenger cars.
The incentive refunds were a per unit discount that was paid to
[importer] by [seller] in a lump sum.
It is [importer's] position that if Customs concludes that
the payments made by [importer] to [seller] as a result of
"renegotiated price changes" are part of the value of the
imported merchandise, then [importer] believes the incentive
rebates paid by [seller] to [importer] should also be taken into
account in determining the appraised value of the merchandise.
ISSUE:
Whether the subject merchandise may be appraised under
transaction value based on the transaction between [seller] and
[importer?]
Whether the incentive rebates should be taken into account
in determining the appraised value of the merchandise?
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 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
certain enumerated additions. 19 U.S.C. 1401a(b)(1). "The term
'price actually paid or payable' means 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." 19 U.S.C. 1401a(b)(4)(A).
These definitions require that there be a price actually
paid or payable when sold for exportation to the United States.
Customs regulations provide that the price actually paid or
payable may be achieved by application of a formula:
In determining transaction value, the price actually
paid or payable will be considered without regard to
its method of derivation. It may be the result of
discounts, increases, or negotiations, or may be
arrived at by the application of a formula, such as the
price in effect on the date of export in the London
Commodity market. The word "payable" refers to a
situation in which the price has been agreed upon, but
the actual payment has not been made at the time of
importation ...
19 CFR 152.103(a)
Counsel contends that although the USDA denominates the
prices as "tentative", they are, in fact, firm prices at the time
of importation. Counsel, accordingly, claims that the
retroactive price adjustments are not part of the price actually
paid or payable. Therefore, counsel's position is that the
appraised value of the imported merchandise should be based on
the price paid by [importer] to [seller] at the time of entry,
without any adjustment to reflect post importation price
adjustments (whether increase or decrease) between the parties.
The facts in this internal advice parallel those in a
reconsideration request, HRL 545242, which was decided on April
16, 1996. In that decision Customs found that at the time of
importation the price of the merchandise was not "fixed", and,
accordingly, that transaction value did not exist. Instead, the
price for the goods was arrived at pursuant to an agreed-upon
methodology that includes an initial sum which was subject to
adjustments. Customs concluded that the parties to the agreement
knew the pricing structure took into consideration possible, if
not probable, price adjustments due to changing conditions and
market pressures existing in the U.S. automobile industry.
Because the parties in HRL 545242 exercised control over
whether and to what degree the price would be adjusted in
response to changing competitive pricing conditions, the pricing
methodology could not be considered a "formula" within the
meaning of 19 CFR 152.103(a)(1) and transaction value was
eliminated as a basis of appraisement. Moreover, Customs noted
that with respect to the price of the vehicles sold to [third
party importer] which were the same or similar models as those
sold by [seller] to [importer], there exists a condition or
consideration for which a value cannot be determined, which
pursuant to section 402(b)(2)(A)(ii) of the TAA also precludes
appraisement under transaction value. The effect of such an
arrangement results in the sale price of one good being
conditioned on the sale price of another.
Although the pricing methodology in HRL 545242 was not
acceptable for appraisement under transaction value, Customs,
nonetheless, determined that it was a reasonable means for
determining the value of the goods under section 402(f) of the
TAA using a modified transaction value approach and taking into
account both the upward and downward adjustments. A copy of HRL
545242 is attached.
Because the facts in this case parallel those in HRL 545242,
the outcome with regard to the pricing methodology is identical.
Additionally, we note that to our knowledge we do not have the
information to appraise the merchandise under the alternate
methods set forth in 19 U.S.C. 1401a(b)-(e). Customs,
accordingly, finds that the merchandise should be appraised under
section 402(f) of the TAA, following a modified transaction value
approach which permits taking into account both the upward and
downward post importation adjustments.
Counsel submits that if Customs concludes the post
importation price adjustments constitute part of the appraised
value, then the incentive rebates should be taken into
consideration to off-set the adjustments. As stated in the
facts, the incentive refunds are payments made by [seller] to
[importer] and are applicable to all vehicles exported by
[seller] to [importer] during an "incentive period." These
refunds are a per unit discount that is paid to [importer] by
[seller] in a lump sum pursuant to a separate Memorandum of
Understanding.
Counsel claims that the agreement to refund certain monies
to [importer] is a formula agreed upon prior to the exportation
of the merchandise and, accordingly, that the rebate should be
deducted from the appraised value of the merchandise. We
disagree.
In the instant case, the incentive rebates were never
included in the methodology; hence, they cannot be "deducted"
from the price. Instead, the incentive rebates appear to relate
to promotional or advertising activities in the resale of the
merchandise in the U.S. The rebate program represents [seller's]
agreement to share with [importer] the expenses associated with
sales incentives for [seller] passenger cars sold by [importer]
in the U.S. The incentive rebates are not taken into
consideration, so far as we can tell, in determining the price of
imported merchandise purchased by [importer]. Because the
subject merchandise is to be appraised under section 402(f) of
the TAA following a modified transaction value approach, we find
that the incentive rebates should be regarded as payments which
are outside the scope of the pricing methodology and which,
therefore, should not be taken into consideration in appraising
the imported merchandise.
HOLDING:
As set forth above, the subject merchandise should be
appraised under section 402(f) of the TAA as represented by the
sum of the tentative price agreed upon between the parties plus
any adjustments contemplated within that methodology, whether
upwards or downwards, which are effected after the date of
importation. The resulting price is a reasonable basis for
appraisement under section 402(f) of the TAA. Because the
amounts paid to [importer] by [seller] in connection with the
sales incentives programs are not part of the pricing
methodology, such amounts are not taken into account in
determining the appraised value of the merchandise.
Sincerely,
Acting Director
International Trade
Compliance Division