RR:IT:VA 546069 KCC
Port Director
U.S. Customs Service
c/o Protest and Control Section
6 World Trade Center, Room 761
New York, New York 10048-0945
RE: Application for Further Review of Protest 1001-95-100871;
Goya cheese; transaction value; bona fide arm's length sale;
sale for export to the United States; Nissho Iwai American
Corp.; Synergy Sport International, Ltd.; J.L. Wood; HRLs
545144, 545271, 545360, 545648, 544775, 543633, 545474, and
545254
Dear Port Director:
This is in regard to the Application for Further Review of
Protest 1001-95-100871 concerning the proper transaction value,
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(b),
of Goya cheese imported by Orlando Food Corporation. Information
presented at a meeting on April 12, 1996, and contained in
additional submissions dated February 14, and May 23, 1996, were
taken into consideration in rendering this decision.
FACTS:
The imported merchandise was appraised using transaction
value, based on the sale between Orlando Food Corporation
("Orlando") and Vonk Diary Products of Holland ("Vonk"). In a
protest timely filed on February 2, 1995, Counsel for Orlando,
the importer, contends that the transaction value should be based
on the alleged sale between Vonk and the cheese manufacturer,
Rokishkio Suris of Lithuania ("Rokishkio").
Rokishkio and Vonk entered into an exclusive supply contract
("contract") in March 1994. Vonk, the buyer, agreed to buy all
quantity of Goya cheese produced by Rokishkio, the seller. See,
1.1 and 1.3 of the contract. The exclusivity clause states:
Seller produces Goya exclusive as per previous contract for
Vonk/USA.
Additionally, 4.7 (Payments) of the contract states:
The Buyer will do the utmost to pay in time - terms as
agreed - as well as to load cheese in time as Seller
has exclusively contract with Buyer, Seller never has
the right to sell to other Buyers unless written
approval of the Buyer (emphasis added).
Rokishkio agreed to manufacture the Goya cheese according to the
technical production sheet and to the qualifications as outlined
in the contract. Vonk has final quality control at its bonded
warehouse in Holland. We note that the contract calls for
payment in U.S. dollars and that the price clause (2.4) states
that "[i]f the United States Government reduces the present duty
on Goya cheese import difference will be split up for both
parties."
Counsel states that the price paid by Vonk for the Goya
cheese is comparable to the price of other cheese produced in
Lithuania and is largely based on the market price of milk plus
the factory's normal overhead and profit. Counsel states that
the contract provides that Vonk purchases all the Goya cheese
produced by Rokishkio. Counsel maintains that the exclusivity
clause in the contract requires that Rokishkio shall produce Goya
cheese only for Vonk for export to the United States. Moreover,
Counsel states that pursuant to 4.7 of the contract, Rokishkio
is prohibited from producing or supplying this Goya cheese to
third parties or any other market. Based upon projected
production, Vonk then secures purchase contracts from Orlando and
other U.S. importers. Vonk supplies the factory with customized
cryovac bags. Counsel states that the cheese is packaged for the
U.S. market before it leaves the Rokishkio factory.
After production, the Goya cheese is shipped via truck from
Rokishkio to Holland under a TIR Carnet and entered into a bonded
warehouse. Counsel submitted copies of TIR Carnet Documents,
Dutch Customs Document for Storage In-Bond (form IM-7), and Dutch
Exportation Document (Form T-1). Vonk conducts quality control
at its bonded warehouse to ensure that the cheese meets the
contract specifications. Counsel states that if the cheese does
not meet the contract quality, it can be returned to Rokishkio
for sale to process cheese factories in the Baltic States,
Russia, Bell Russia and Ukraine, it can be sold by Vonk for
processing on the domestic market, or it is destroyed. 5.5 of
the contract states that Rokishkio has the right to sell non-specified grade cheese to Vonk at the set contract price. Vonk
then exports all the "specified-grade" Goya cheese purchased from
Rokishkio to its U.S. customers against the standing orders.
Counsel stated in its February 14, 1996, submission that there is
no financial incentive for Vonk to sell the "non-specified grade"
cheese in the domestic market, because Vonk would pay
prohibitively high tariffs and as a result the cheese becomes too
expensive for the European market as compared to other Gouda or
Edam cheese. Counsel further stated that as of February 14,
1996, the time period which covers the entries under protest, no
cheese has been sold in the European market. Counsel states that
to date all the cheese produced by Rokishkio is "specified-grade"
Goya cheese.
Counsel for Orlando has submitted the contract between
Rokishkio and Vonk and a sample of the cryovac bag in which the
Goya cheese is packaged for our examination. The bag states that
the Goya cheese is exported by Vonk, Holland. It also sets forth
the nutritional facts required by the U.S. Department of Health
and Human Services, Food and Drug Administration. Additionally,
Counsel has submitted Orlando purchase orders for "Goya Cheese -
Lithuanian" dated April 14, and May 31, 1994, Vonk invoices to
Orlando for Goya cheese dated June 6 and 21, 1994, and Rokishkio
invoices to Vonk for Goya cheese dated June 8 and 10, 1994, as
evidence that the sale for exportation occurred between Rokishkio
and Vonk for the entries at issue.
ISSUE:
Whether the evidence submitted establishes that the
transaction between Rokishkio and Vonk determines the "price
actually paid or payable" for the imported Goya cheese.
LAW AND ANALYSIS:
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 additions. The "price
actually paid or payable" is defined in 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."
You appraised the merchandise using transaction value, based
on the sale between Orlando and Vonk. It is your position that
the transaction value is not based on the sale between Rokishkio
and Vonk because the Goya cheese is not sold for export at the
time of the contract between those parties. You note that the
contract states Vonk will buy all the Goya cheese from the
manufacturer, Rokishkio, but you state that the contract does not
establish that Vonk will purchase the Goya cheese and sell it to
U.S. producers. Based on projected production from the
manufacturer, Vonk then secures purchase contracts from Orlando
and other U.S. importers. You state that this is confirmed by
Counsel's statement that a "very small amount of cheese...is sold
off in Europe." Thus, it is your position that the sale for
exportation occurred between Orlando and Vonk.
Counsel contends that this transaction involves a three-tiered situation involving a U.S. purchaser/importer (Orlando),
middleman (Vonk), and primary-level seller (Rokishkio). Thus,
Counsel for Orlando reasons that two sales took place, one
between Rokishkio and Vonk and the other between Vonk and
Orlando. Counsel for Orlando maintains that the sale for
exportation took place between Rokishkio and Vonk.
In Nissho Iwai American Corp. v. United States, 16 C.I.T.
86, 786 F. Supp. 1002, reversed in part, 982 F.2d 505 (1992), and
Synergy Sport International, Ltd. v. United States, Slip Op. 93-5
(C.I.T., Jan. 12, 1993), 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, middleman and a United States
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 to the manufacturer 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 the United
States.
We note that in the context of filing an entry, Customs Form
7501, an importer is required to make a value declaration. As
indicted by the language of CF 7501 and the language of the
valuation statute, there is a presumption that transaction value
is based on the price paid by the importer.
In accordance with the Nissho Iwai and Synergy decisions and
our own precedent, we presume that transaction value is based on
the price paid by the importer. See, Headquarters Ruling Letter
(HRL) 545144 dated January 19, 1994, HRL 545271 dated March 4,
1994, HRL 545360 dated May 31, 1994, and HRL 545648 (IA 10/94)
dated August 31, 1994. 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 alleged sale
was a bona fide "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.
First, we must examine whether the sale between Rokishkio
and Vonk was a bona fide "arms's length sale." For Customs
purposes, the word "sale" generally is defined as a transfer of
ownership in property from one party to another for a
consideration. J.L. Wood v. United States, 62 CCPA 25, 33 C.A.D.
1139 (1974). While J.L. Wood was decided under the prior
appraisement statute, Customs adheres to this definition under
the TAA. The primary factors to consider in determining whether
there has been a transfer of property or ownership are whether
the alleged buyer has assumed the risk of loss, and whether the
buyer has acquired title to the imported merchandise. See, HRL
544775 dated April 3, 1992, and HRL 543633 dated July 7, 1987.
Also relevant is whether, in general, the roles of the parties
and circumstance of the transaction indicate that the parties are
functioning as buyer and seller. See, HRL 545474 dated August
25, 1995. We find that the submitted evidence does establish a
bona fide "arm's length sale" between Rokishkio and Vonk.
Commercial documents relating to the sales, such as, the
exclusive supply contract and commercial invoices from Rokishkio
to Vonk, were submitted. Although no documents were submitted to
show that Vonk paid Rokishkio for the Goya cheese, we note that
the exclusive supply contract established the payments to be made
for the Goya cheese. We find that these documents establish that
a transfer of ownership of the Goya cheese for payment occurred
between Rokishkio and Vonk.
Although we find a bona fide sale between Rokishio and Vonk,
the evidence submitted does not support the position that the
sale between Rokishkio and Vonk was a sale for export clearly
destined to the United States. First, as discussed above, the
cheese is not shipped to the U.S. customer from the factory but
first to Holland for quality testing by Vonk. Although this fact
does not preclude a finding that the cheese was clearly destined
to the U.S. when sold to Vonk, this is one factor to consider
along with all the other evidence. See, HRL 545254 dated
November 22, 1994, which held that even though the goods were
shipped in bond through Canada, they were clearly destined to the
U.S. based on all the evidence, including the fact that the
imported merchandise bore the U.S. customer's logos.
Second, the language of the contract between Vonk and
Rokishkio does not support such a finding. The exclusivity
clause in the contract states that the "[s]eller (Rokishkio)
produces Goya exclusive as per previous contract for Vonk/USA."
Vonk's interpretation of the exclusivity clause is that
"Rokishkio Factory produces only Goya cheese for Vonk for export
to the States and will not produce or supply this goya cheese to
third parties." Counsel's January 2, 1996, submission. Counsel
states that it is impractical and financially prohibitive to
export the Goya cheese directly to the U.S. from the Lithuanian
factory because without quality control testing non-grade Goya
cheese will often be shipped to the U.S. Counsel emphasizes that
Vonk must perform quality control testing in its bonded warehouse
in Holland to avoid rejection of the Goya cheese by Orlando and
other importers. Although the parties may have intended the
contract to be for the exclusive sale of Goya cheese destined to
the U.S., it is not so written. The exclusivity clause does not
clearly indicate that the cheese was destined for the U.S. The
contract is an exclusive supply contract between Rokishkio and
Vonk. 1.1 of the contract states "[t]he Seller have produce and
sell and the Buyer have to buy 'Goya' cheese..." and 4.7 of the
contract states that "...Seller has exclusively contract with
Buyer, Seller never has the right to sell to other Buyers unless
written approval of the Buyer." However, the contract does not
clearly establish that the sale of Goya cheese between Rokishkio
and Vonk was a sale for export destined for the United States.
Additionally, not all the Goya cheese is clearly destined
for the United States when shipped to Holland. 1.3 of the
contract states that "[t]he Buyer agrees to buy all quantity of
'Goya' cheese produced by the Seller." The cheese is shipped to
Vonk's bonded warehouse where it is subject to quality testing.
The specified-grade Goya cheese is then shipped to the United
States. Counsel submits that the contract is only for specified-grade cheese which is to be shipped to the United States.
However, the contract appears to provide for both specified-grade
and non-specified grade Goya cheese. 5.5 of the contract states
that Rokishkio has the right to sell non-specified grade Goya
cheese to Vonk at the set contract price. Furthermore, Counsel
indicates that Vonk is permitted to sell "non-specified grade"
Goya cheese. Counsel advises that to date this has not occurred;
all the cheese produced by Rokishkio has met the "specified-grade." The fact that to date no cheese has ever been rejected
is irrelevant because the issue is whether the cheese is clearly
destined for the United States when sold to Vonk. The terms of
the contract provide for the purchase of specified-grade and non-specified grade Goya cheese. The specified-grade Goya cheese is
presumably destined for the U.S., whereas the non-specified grade
cheese, as stated by Counsel, can be sold off in the European
market. Thus, the contract does not solely provide for the sale
of specified-grade Goya cheese destined for the U.S.
We note that the purchase sequence is some evidence that the
Rokishkio/Vonk sale was a sale for export to the United States.
Counsel submitted documents demonstrating that Vonk secures a
purchase order for the Goya cheese before the cheese leaves
Rokishio. These documents were purchase orders from Orlando to
Vonk dated April 14, and May 31, 1994, for Lithuanian Goya
Cheese, Vonk invoices to Orlando dated June 6, and 21, 1994, for
prompt shipment of the Goya cheese, and the Rokishkio invoices to
Vonk dated June 8, and 10, 1994. Additionally, the fact that the
Goya cheese is cryovac packed by Rokishkio in plastic bags which
identify Vonk as the exporter of the Lithuanian Goya cheese and
contain the nutritional labeling information as required by the
U.S. Department of Health and Human Services, Food and Drug
Administration is some evidence that the Goya cheese was sold for
exportation to the United States. However, Rokishkio invoices to
Vonk make no reference to Orlando or otherwise indicate that the
cheese is clearly destined to the U.S. and the bags do not
identify the name or address of the U.S. purchaser. Also, as
noted above, some of the packaged cheese which is ordered may
never reach the United States because it may be found to be non-specified grade. The Goya cheese shipped from Rokishkio may or
may not be destined for the U.S. depending on its quality.
Finally, the invoices from Rokishkio to Vonk, the TIR
Carnets and freight documents do not indicate that the Goya
cheese is destined for the U.S. The invoices do not show terms
of sale and do not indicate that the Goya cheese was destined for
the U.S. Additionally, the TIR Carnets indicate that the Goya
cheese was transported from Lithuania and entered Holland in bond
under Customs supervision to Vonk's bonded warehouse. Thereafter
the shipping documents show shipment from Holland to the U.S.
None of the evidence submitted establishes that the Goya cheese
was clearly destined for the U.S. at the time it was exported
from Lithuania.
Based on the above considerations, we find that insufficient
evidence has been presented to establish a sale for export to the
United States between Rokishkio and Vonk in order to overcome the
presumption that transaction value is based on the price Orlando
paid Vonk.
HOLDING:
Based on the evidence presented, the price between Rokishkio
and Vonk does not constitute the price actually paid or payable
for purposes of determining the transaction value of the Goya
cheese.
The protest should be DENIED. In accordance with Section 3
A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993,
Subject: Revised Protest Directive, this decision, together with
the Customs Form 19 should be mailed by your office to the
protestant no later than 60 days from the date of this letter.
Any reliquidation of the entry in accordance with the decision
must be accomplished prior to mailing the decision. Sixty days
from the date of the decision the Office of Regulations and
Rulings will take steps to make the decision available to customs
personnel via the Customs Rulings Module in ACS and the public
via the Diskette Subscription Service, Freedom of Information Act
and other public access channels.
Sincerely
Acting Director
International Trade Compliance
Division