VAL CO:R:C:V 545648 LR
Area Director of Customs
Western Great Lakes Area
Minneapolis, MN 55401
RE: Internal Advice 10/94; carrying cases; sale for exportation;
Nissho Iwai American Corp v. United States; Synergy Sport
International, Ltd. v. United States; HRL's 545144; 545271;
545320; presumption that transaction value is based on the price
the importer paid
Dear Sir:
This is in response to your memorandum dated February 3,
1993, forwarded to this office by the Chief, Textiles and Plastic
Branch, New York Seaport, and received by this office on May 13,
1994, requesting internal advice regarding the correct basis of
appraisement of certain laptop computer carrying cases imported
by Marubeni America Corporation ("MAC").
FACTS:
During the period September 21, 1990 through July 31, 1991,
MAC imported textile carrying cases for laptop computers. These
importations, involving eleven entries, are the subject of a pre-
penalty notice issued to MAC on December 15, 1992, for alleged
undervaluation. A copy of the pre-penalty response submitted by
counsel for MAC was provided.
You indicate that the circumstances surrounding these
importations, as provided to you by counsel, are as follows: The
cases were manufactured by Daesung Industrial in Korea ("Korean
seller") and sold to Yasumura Co. Ltd of Tokyo, Japan ("Japanese
Middleman 1") at an invoice price of XXX per case. Japanese
Middleman 1 sold the cases to Marubeni Corporation ("Japanese
Middleman 2"), also of Tokyo, Japan. You indicate that the price
is not known. Japanese Middleman 2 then resold the cases to its
U.S. subsidiary, MAC, the importer of record, at an invoice price
of XXX per case. MAC then resold the cases to Zeos International
("Zeos") of Minneapolis, Minnesota, an assembler of laptop
computers, for an undisclosed amount.
The Customs entry documents pertaining to one of the entries
was provided, including two Entry Summaries, Customs Form 7501.
The first, showing an entered value of XXX was rejected by
Customs. The second, is marked "corrected" and shows an entered
value of XXX. MAC is shown as the importer of record. Also
provided were two commercial invoices: one from the Korean
seller to Japanese Middleman 1 for XXX (XXX unit price); a
"corrected" invoice from Japanese Middleman 2 to MAC for XXX (XXX
unit price); and, a textile export visaed invoice from the
government of Korea ("export visa") for the imported cases. The
Korean seller's invoice and the export visa indicate that the
goods were to be shipped from Korea on May 10, 1991, to
Minneapolis, U.S.A., via Seattle. No documents relating to the
alleged sale from Japanese Middleman 1 to Japanese Middleman 2 or
from MAC to Zeos were provided. The file contains no purchase
orders or contracts relating to any of the sales.
With regard to the relationship of the parties, counsel
indicates in its pre-penalty response that the Korean seller and
the Japanese Middleman 1 are not related and that MAC is a
subsidiary of Japanese Middleman 2. Your office indicates that
due to the location of the transactions, you are unable to
determine the relationships between the Korean seller and
Middleman 1 and whether or not those relationships influence the
price paid or payable. The New York Seaport advises that "[t]he
relation between each party is unknown" but "it does appear that
there is a ownership relation between MAC and the parent company
Marubeni Corporation of Japan."
MAC initially entered the cases at the price which Japanese
Middleman 1 paid to the Korean seller (XXX). It is your position
that transaction value should be based on the sale between
Middleman 2 and MAC (XXX). The New York Seaport, NIS Division,
concurs.
In its response to the pre-penalty notice, counsel claims
that based on the decisions in Nissho Iwai American Corp. v.
United States, 982 F.2d 505 (Fed. Cir. 1992), and Synergy Sport
International, Ltd. v. United States, 17 C.I.T. , Slip Op. 93-
5 (Ct. Int'l. Trade January 12, 1993). the proper basis of
valuation of the involved entry is under transaction value,
represented by the amount paid or payable by Middleman 1 to the
Korean seller (XXX per case). It claims that both the Korean
seller's commercial invoice and the export visa support this
position. Among other things, they indicate that the goods were
to be shipped from Korea to Minneapolis, U.S.A. via Seattle.
ISSUE:
Whether transaction value should be based on the sale
between the Korean seller and Japanese Middleman 1 or on the sale
between Japanese Middleman 2 and MAC.
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 Agreement 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. Section 402(b)(1) (emphasis added).
For the purposes of this ruling we have assumed that transaction
value is the appropriate basis of appraisement.
The "price actually paid or payable" is defined in section
402(b)(4)(A) of the TAA as "the total payment (whether direct or
indirect...) made, or to be made, for the imported merchandise by
the buyer to, or for the benefit of, the seller."
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 the merchandise to be
exported to the United States. However, in Nissho Iwai American
Corp. v. United States, supra, the U.S. 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. The court 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 constitutes a viable
transaction value. 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. That determination can only be made on a case-
by-case basis.
Id. at 509. See also, Synergy Sport International, Ltd. v. United
supra. In both Nissho Iwai and Synergy, the middleman was the
importer of record.
Headquarters Ruling Letter ("HRL") 545144, January 19, 1994,
involved a three-tiered distribution arrangement, in which the
middleman was not the importer. We reiterated our position that
consistent with the above decisions, there is a presumption that
transaction value is based on the price paid by the importer:
[i]n keeping with the courts' respective holdings and our
own precedent, we will continue to presume that an
importer's declared transaction value is based on the price
the importer paid. In further keeping with the courts'
holdings, we note that in those situations where an importer
requests appraisement based on the price paid by the
middleman to the foreign manufacturer (and the importer is
not the middleman), the importer may do so. However, it
will be the importer's responsibility to show that such
price is acceptable under the standard set forth in Nissho
Iwai and Synergy. That is, the importer must present
sufficient evidence that the sale was an "arms's length
sale," and that it was "a sale for export to the United
States," within the meaning of 19 U.S.C. 1401a(b).
It was determined that the evidence presented did not establish
that the imported goods were clearly destined for the United
States when the middleman purchased, or contracted to purchase,
them. The decision also notes that the file contains no evidence
on the relationship between the seller and the middleman.
HRL 545271, March 4, 1994, also involved a three-tiered
distribution arrangement in which the middleman was not the
importer. The evidence presented that the merchandise was
destined for the U.S. when sold to the middleman consisted of
purchase contracts between the importer and the middleman
indicating that the goods were designed and manufactured
according to the importer's specifications. The merchandise was
also tagged with the importer's label and sent directly from the
manufacturer to the importer. The purchase contracts indicated
that the manufacturer has access to the quota/visa required to
ensure entry of the merchandise into the U.S. In addition,
purchase orders between the middlemen and the manufacturers
showed that the manufacturers are to provide the importer with
specification and pre-production samples of the garments and that
the goods will be shipped by the manufacturers directly to the
importer. Based on this evidence, we ruled that transaction
value should be based on the sale between the manufacturer and
the middleman.
In HRL 545360, May 31, 1994, we ruled that in the case of
merchandise subject to visa requirements, copies of the visaed
invoices covering the merchandise for exportation to the United
are required as evidence that the merchandise is destined for the
United States. That case involved a three-tiered distribution
arrangement with manufacturers in the Far East, a Hong Kong
middleman, and a U.S. importer. In addition to the visaed
invoices, copies of the manufacturers' invoices to the middleman,
invoices from the middleman to the importer, purchase orders from
the importer to the middleman, and an affidavit from the importer
regarding the circumstances of the importations were submitted.
Based on such evidence, we ruled that at the time the middleman
purchased, or contracted to purchase, the imported goods, they
were "clearly destined for the United States".
In the present case, since MAC is the importer of record,
the presumption is that transaction value is based on the price
that MAC paid to Japanese Middleman 2 (assuming the sale was an
arms's length sale). In order to appraise the goods based on the
price Japanese Middleman 1 paid to the Korean seller, the
importer must present sufficient evidence that the sale was an
arm's length sale and that it was a sale for exportation to the
United States. In support of its claim that at time of the sale
from the Korean seller to Japanese Middleman 1 the goods were
clearly destined for the United States, counsel refers to the
Korean seller's invoice and the export visa, both of which
reflect that the goods will be shipped to Minneapolis, U.S.A. No
other evidence was provided. As discussed below, we find that
the evidence presented is not sufficient.
In contrast to the above cases where all relevant
information pertaining to the import transactions was provided,
in the present case, pertinent information regarding the subject
importations is lacking to establish that the alleged sale to
Middleman 1 was a bona fide sale or that it was a sale for
exportation to the United States. Although counsel indicates
that there were several sales involving the imported goods
(Korean seller-Japanese Middleman 1; Japanese Middleman 1-
Japanese Middleman 2; Japanese Middleman 2-MAC; MAC-Zeos) no
purchase orders or contracts relating to any of these alleged
sales were provided. While the Korean seller's invoice to
Japanese Middleman 1 indicates that the terms of sale were FOB
Korea, we have no information about the terms of the alleged sale
from Japanese Middleman 1 to Japanese Middleman 2. In fact, no
documentation regarding the sale from Japanese Middleman 1 to
Japanese Middleman 2 was provided at all. Based on the evidence
presented we cannot determine whether the alleged sales to both
middlemen were bona fide sales, and if so, when the sales
occurred and the underlying circumstances surrounding them.
Without knowing all the circumstances surrounding the
importation, we cannot determine whether the alleged sale to
Japanese Middleman 1 was a sale for exportation to the United
States.
Moreover, assuming there was a bona fide sale to Japanese
Middleman 1, the evidence is insufficient to establish that the
goods were clearly destined to the United States at the time of
such sale. While the export visa, issued on May 10, 1991, is
evidence that as of that date the goods were to be exported to
the United States, it does not establish that the goods were
clearly destined for the United States prior to this date. (The
entry documents indicate that the goods were also exported on May
10, 1991). Other than the Korean seller's April 27, 1991
invoice, there is no documentary or other evidence that the sale
to Japanese Middleman 1 was a sale for exportation to the United
States.
For example, in HRL 545271, purchase contracts between the
importer and the middleman indicating that the goods were
designed and manufactured according to the importer's
specifications were provided. In HRL 545320, purchase orders
from the importer to the middleman were submitted along with an
affidavit from the importer regarding the circumstances of the
importations. In this case, no evidence has been presented
indicating that the goods were manufactured to MAC's or Zeos'
specifications or that they bore their labels. There are no
purchase orders, contracts, affidavits, etc. from MAC or Zeos
which show this. Although the goods were ultimately exported to
the United States, we find that there is insufficient evidence to
establish that they were clearly destined for exportation to the
United States when sold to Japanese Middleman 1.
In addition, other than counsel's statement that the Korean
seller and Japanese Middleman 1 are not related, no evidence was
presented establishing that the alleged sale was "at arm's
length".
Based on the above considerations, we find that insufficient
evidence has been presented to overcome the presumption that
transaction value is based on the price MAC paid to Japanese
Middleman 2. (If they are related parties as provided in 19
U.S.C. 1410a(g)(1), transaction value is acceptable only if the
relationship between them did not influence the price actually
paid or payable; or if the transaction value of the imported
merchandise closely approximates the transaction value, deductive
value or computed value for identical or similar merchandise as
provided in 19 U.S.C. 1401a(b)(B)).
HOLDING:
Based on the evidence presented, transaction value should
not be based on the price Japanese Middleman 1 paid to the Korean
seller. Assuming the price MAC paid to Japanese Middleman 2 is a
viable transaction value, this should be the basis for
appraisement.
The Office of Regulations and Rulings will take steps to
make this decision available to Customs personnel via the Customs
Rulings Module in ACS and the public via he Diskette Subscription
Service, Freedom of Information Act and other public access
channels 60 days from the date of this decision.
Sincerely,
John Durant, Director
Commercial Rulings Division