VAL CO:R:C:V 545714 LPF
Robert J. Schott
Air Schott
P.O. Box 17373
Washington, D.C. 20041-0373
RE: Proper transaction value of merchandise; Sale for exportation; 19 U.S.C. 1401a(b)
Dear Mr. Schott:
This is in response to your letter of June 25, 1994, on
behalf of Videotronic Uwe Bischke, Ltd. of Columbia, MD in which
you request a ruling concerning the valuation of merchandise
imported from Taiwan or Korea.
FACTS:
Your inquiry pertains to two scenarios concerning
Videotronic Uwe Bischke, GmbH International ("Videotronic
Intl."), a German company, and its wholly owned subsidiary
Videotronic Uwe Bischke, Ltd. ("Videotronic Ltd."), a U.S.
corporation. In one scenario Videotronic Ltd. purchases
merchandise in Taiwan or Korea for direct shipment to the U.S.
In order to benefit from the "buying power" of its parent company
in Germany, these goods will be purchased under a Letter of
Credit issued by Videotronic Intl. The terms of sale either will
be Ex Works (EXW) or Free on Board/Free Carrier (FOB)/(FCA). An
invoice will be issued by the manufacturer showing the EXW
selling price, plus separate FOB charges, if any, of the
merchandise. Videotronic Ltd. will pay for the merchandise by
draft, wire transfer, credit or other exchange to Videotronic
Intl. Payment to Videotronic Intl. will be for the
manufacturer's invoice price of the merchandise plus an
administrative cost added on by Videotronic Intl. and invoiced
periodically to Videotronic Ltd. Videotronic Ltd. intends to
make entry using the manufacturer's EXW invoice. You request a
decision as to whether this invoice will establish transaction
value in accordance with 19 U.S.C. 1401a(b).
In the other scenario, goods may be ordered by Videotronic
Ltd. through Videotronic Intl. and shipped from the manufacturer
to Videotronic Intl. and then to Videotronic Ltd. At the time of
shipment from the manufacturer, the goods will be pre-designated
for the U.S. market. You claim this will be well documented by
-2-
the manufacturer on the export invoice and by Videotronic Intl.
The goods will be routed through Germany only for logistical
efficiencies and/or transport economies. Videotronic Ltd. will
pay for the merchandise by draft, wire transfer, credit or other
exchange in favor of Videotronic Intl. Similarly, payment to
Videotronic Intl. will be the manufacturer's invoice price of the
merchandise plus an administrative cost added by Videotronic
Intl. and invoiced periodically to Videotronic Ltd. You request
a decision as to whether the commercial invoice from the
manufacturer to Videotronic Intl. will establish transaction
value.
ISSUE:
Whether transaction value, as established by the sale
between the manufacturer and Videotronic Intl., is the
appropriate basis for valuation of the subject merchandise.
LAW AND ANALYSIS:
The preferred method of appraisement is transaction value
pursuant to section 402(b) of the Tariff Act of 1930, as amended
by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C.
1401a. Section 402(b)(1) of the TAA provides, in pertinent part,
that the transaction value of imported merchandise is the "price
actually paid or payable for the merchandise when sold for
exportation to the United States" plus enumerated statutory
additions.
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, and exclusive of any costs, charges, or expenses
incurred for transportation, insurance, and related services
incident to the international shipment of the merchandise...)
made, or to be made, for the imported merchandise by the buyer
to, or for the benefit of, the seller."
A bona fide sale must exist between the Taiwanese or Korean
manufacturer and Videotronic Intl. for the imported merchandise
to be appraised based on the transaction value represented by
that price. In J.L. Wood v. U.S., 62 CCPA 25, 33, C.A.D. 1139,
505 F.2d 1400, 1406 (1974), the U.S. Court of Customs and Patent
Appeals defined the term "sale" as the transfer of property from
one party to another for consideration. Although J.L. Wood was
decided under the prior appraisement statute, Customs recognizes
this definition under the TAA.
Several factors may indicate whether a bona fide sale
existed between a potential seller and buyer. In determining
whether property or ownership has been transferred, Customs
considers whether the alleged buyer has assumed the risk of loss
and acquired title to the imported merchandise. See Headquarters
-3-
Ruling Letter (HRL) 545105, issued November 9, 1993. In
addition, Customs may examine whether the alleged buyer paid for
the goods, whether such payments are linked to specific
importations of merchandise, and whether, in general, the roles
of the parties and circumstances of the transaction indicate that
the parties are functioning as seller and buyer.
If the appraising officer would determine that sales
occurred between the Taiwanese or Korean manufacturer and
Videotronic Intl. as well as between Videotronic Intl. and
Videotronic Ltd., the decisions reached in Nissho Iwai American
Corp. v. United States, 786 F. Supp. 1002 (CIT 1992) rev'd 982
F.2d 505 (Fed. Cir. 1992) and Synergy Sport International, Ltd.,
v. United States, Slip. Op. 93-5 (Ct. Int'l Trade, decided
January 12, 1993) become relevant. We note that although these
decisions provide that the lower price should be used for
transaction value when there is more than one statutorily viable
transaction value, this standard would not be relevant if
Videotronic Intl. was serving as an agent within one sale as
opposed to a middleman between two sales (providing two
statutorily viable transaction values).
In Nissho Iwai and Synergy, the U.S. Court of Appeals for
the Federal Circuit and the Court of International Trade,
respectively, addressed the proper dutiable value of merchandise
imported pursuant to a three-tiered distribution arrangement
involving a foreign manufacturer, a middleman, and a U.S.
purchaser. In both cases the middleman was the importer of
record. In each case the court held that the price paid by the
middleman/importer was the proper basis for transaction value.
Each court further stated that in order for a transaction to be
viable under the valuation statute, it must be a sale negotiated
at arm's length free from any nonmarket influences and involving
goods clearly destined for export to the United States. The
courts' analysis in this regard would be relevant in a
determination as to whether the transactions between the
manufacturers and Videotronic Intl. as well as between
Videotronic Intl. and Videotronic Ltd. were transactions
considered to be viable bases for transaction value.
We note that in the context of filing an entry, via Customs
Form (CF) 7501, an importer is required to make a value
declaration. As indicated by the language of the CF 7501 and the
language of the valuation statute, there is a presumption that
such transaction value is based on the price paid by the
importer.
In 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
-4-
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 "arm'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).
With regard to whether transaction value may be based on the
sale between Videotronic Intl. and the foreign manufacturer, we
note that the appropriate evidence would need to be tendered to
the appraising officer (such as invoices, purchase orders,
letters of credit, bills of lading, agreements between the
parties including contracts, and proof of payment) to establish
that the transaction was "a sale for export to the United States"
(i.e., that at the time Videotronic Intl. purchased, or
contracted to purchase, the imported goods, they were "clearly
destined for the United States") and was an "arm's length sale"
within the standard set forth by the court. At that point a
determination may be made as to whether the transaction value of
the imported merchandise should be based on the sale between
Videotronic Intl. and the foreign manufacturer. Once all the
relevant documentation is tendered to the appraising officer it
can be determined whether the invoice between the parties, in and
of itself, appropriately reflects the price actually paid or
payable for the merchandise.
HOLDING:
The appraising officer may value the merchandise based on
the sale from the manufacturer to Videotronic Intl. if the
importer provides sufficient evidence that the conditions
discussed above are met. However, the relevant documentation
first must be submitted to the appraising officer before it is
determined that the invoice between the parties, in and of
itself, appropriately reflects the price actually paid or payable
for the merchandise.
Sincerely,
John Durant, Director
Commercial Rulings Division