VAL RR:IT:VA 546602 LPF
Port Director
U.S. Customs Service
610 W. Ash Street
San Diego, CA 92188
RE: Application for Further Review of Protest No. 2501-96-10028;
Appropriate method of appraisement for fresh asparagus; Sale
for exportation; Deductive value under 402(d); HRLs 545755,
543000, 543848
Dear Director:
This is a decision on an application for further review of a
protest filed May 30, 1996, against your decision concerning the
appraisement of fresh asparagus imported from Mexico. The
entries were liquidated on March 8, 1996. With the exception of
information already released to the public via prior ruling
letters, counsel's request for confidential treatment has been
granted for the information included in the submitted
importer/grower agreement as well as for the pricing and other
proprietary information as designated in counsel's letter of
April 17, 1996.
FACTS:
Lee Brands, Inc. (Lee Brands or Lee), a U.S. importer of
Mexican asparagus, receives produce on a consignment basis. Lee
is obligated to sell on behalf of the Mexican growers employing
the best efforts to obtain the highest price possible through its
activities as marketeer and sales agent. Once the crop is sold,
Lee deducts its commission and other pre-approved categories of
costs from the sale proceeds it collects and remits the balance
to the individual growers.
Counsel explains that as is customary in the industry where
parties have conducted business for years, Lee verbally agrees
upon terms and conditions with many of its Mexican growers.
However, counsel has submitted a sample of a typical written
contract into which Lee occasionally enters. It is counsel's
position that the same material terms apply regardless as to
whether the contracts between the parties are verbal or written.
The submitted agreement provides that Lee has the exclusive
right to market and sell the named grower's asparagus although
the grower remains the owner of the crops and bears risk of loss
until delivery to a third party buyer. In return for Lee's
marketing and other such services, the contract provides that Lee
is to retain a service fee calculated as a percentage of the
sales proceeds, with specified deductions. The grower is
entitled to the remaining proceeds after deduction of the service
fee and other costs specified in the agreement. Finally, the
agreement provides that the grower and Lee operate independent
businesses, without rights or proprietary interests in each
other's businesses, and that each acts for its own individual
account and profit.
Although title to the asparagus is maintained by the Mexican
grower, counsel provides that Lee has absolute discretion in
deciding to whom and when the goods are sold and to determine
refunds or discounts due to quality problems or quantity
discounts. Regardless as to whether the shipments are sold about
the time of, or some time after, importation counsel states that
Lee is liable to the growers while the crop is in its possession.
Accordingly, counsel concludes that the roles and dealings of the
parties, in actuality, are quite different than the manner in
which they have been characterized through contract. Counsel
describes the understanding between the parties as a conditional
sales agreement, whereby the seller reserves title as security
for payment of the goods. In this regard, counsel provides that
Lee only is liable to the growers for losses incurred due to its
failure to sell the imported asparagus for reasons other than its
unsaleable quality. Thus, counsel submits that Lee's season-end
accounting reports prepared for financial settlement purposes
with the growers represents a contractual formula with specific
figures establishing the transaction value for the imported
merchandise.
Counsel submits that although the price actually paid
payable for the asparagus is not ascertainable at the time of
importation and the merchandise is imported on a consignment
basis, that 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, is appropriate insofar
as a price may be obtained based on such a contractual formula.
In support of its position, counsel cites to Headquarters Ruling
Letter (HRL) 543000, issued May 26, 1983, and HRL 543848, issued
March 5, 1987, providing for appraisement based on Green Giant's
transaction value for its asparagus importations.
Insofar as Lee's method of conducting business is concerned,
counsel explains that at the end of each growing season, Lee
prepares a final accounting for each grower, including all
pertinent revenue and expense figures maintained in accordance
with generally accepted accounting principles (GAAP). The result
is an average price per pre-selected crate equivalent which is
used as the basis of the declared values for importations during
the following season. At the end of that season, the actual
price is determined again by accounting for all revenues and
expenses. These season-end calculations are provided to Customs
as the basis for liquidation of Lee's entries.
In the event transaction value is not recognized as the
appropriate method of appraisement, counsel submits that because
appraisement cannot be based on transaction value of identical or
similar merchandise (402(c)), resort to deductive value (402(d))
or a fallback method (402(f)) would be appropriate. With regard
to deductive value, counsel claims that the prices utilized by
Customs do not consider price adjustments which, due to quality
problems for approximately fifteen percent of Lee's importations,
may be made long after the time of sale. Noting that a portion
of Lee's shipments are not sold until beyond a week from the date
of importation and the price adjustments may take up to a month
to be finalized, counsel takes issue with Customs' alleged
practice of relying upon prices reported for sales conducted the
week prior to entry of the instant importations. Additionally,
counsel submits that although Lee is the largest importer of
asparagus, its commission percentage is not utilized in
appraising its importations. For instance, counsel provides that
Lee Brands' commission was approximately [****] or [****]
percent, yet Customs only authorized a deduction of approximately
ten percent.
Whatever method of appraisement ultimately is selected,
counsel contends that given the wide variances in pack sizes
(e.g., small, standard, large, extra large, jumbo, etc.), weights
(e.g., 12, 13 1/2, 15, 27, 28, 30, etc. pounds) and packaging
type (e.g., cardboard, wooden crates, and plastic cartons), that
the submitted season-end reports, utilizing figures calculated on
a weighted average basis, be utilized to value the subject
importations. Counsel adds that Lee's season-end figures rely on
crate equivalency whereby all weights are converted to one common
standard, the thirty pound crate equivalent. We understand
Customs may base deductive value of the instant merchandise on
other importations of asparagus of the same size and weight and,
only if data is unavailable, on those of different sizes and/or
weights.
ISSUE:
Based on the information provided, whether transaction value
or an alternate method of valuation is appropriate for
appraisement, and in either case whether such a value may be
based on average prices per pre-selected crate equivalents.
LAW AND ANALYSIS:
As you are aware, the preferred method of appraising
merchandise imported into the United States 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 amounts for the enumerated
statutory additions (emphasis added). Accordingly, a bona fide
sale must exist between the Mexican growers and Lee Brands if the
goods are to be appraised based on their transaction value.
In determining whether a bona fide sale has taken place
between a potential buyer and seller of imported merchandise, no
single factor is determinative. Rather, the relationship is to
be ascertained by an overall view of the entire situation, with
the result in each case governed by the facts and circumstances
of the case itself. Dorf International, Inc. v. United States,
61 Cust. Ct. 604, A.R.D. 245 (1968). Customs recognizes the term
"sale," as articulated in the case of J.L. Wood v. U.S., 62 CCPA
25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974), to be defined
as: the transfer of property from one party to another for
consideration.
However, several factors may indicate whether a bona fide
sale exists between a potential buyer and seller. In determining
whether property or ownership has been transferred, Customs
considers whether the potential buyer has assumed the risk of
loss and acquired title to the imported merchandise. In
addition, Customs may examine whether the potential buyer paid
for the goods and whether, in general, the roles of the parties
and circumstances of the transaction indicate that the parties
are functioning as buyer and seller.
In the present matter, Customs cannot find that a bona fide
sale and, hence, a sale for exportation to the U.S. occurred
between the Mexican growers and Lee Brands. Simply stated,
Customs continues to maintain its position that transactions
involving goods which are shipped on consignment do not
constitute bona fide sales. See HRL 545755, issued May 18, 1995.
Furthermore, although counsel provides that "Lee is liable to
the growers while the crop is in its possession," it is evident
from the parties' contractual agreements and understandings that
the growers retain ownership of the goods and bear risk of loss
until delivery to a third party buyer. Hence, regardless of any
"conditional sales agreement" which ostensibly may exist between
the parties, Lee apparently does not assume the risk of loss nor
acquire title to the goods. Any "liability" on Lee's part
appears only to emanate from its obligation to employ its best
efforts to obtain the best price possible as marketeer and sales
agent, as opposed to an independent buyer/seller. The fact that
Lee receives a "service fee" calculated as a specific percentage
of the sales proceeds and not consideration, or payment, for the
goods themselves supports such a finding.
Moreover, HRLs 543000, supra, and HRL 543848, supra, are
distinguishable from the instant case. In HRL 543000 Customs
found that the Mexican asparagus growers transferred title to
Green Giant, the importer/buyer, and a bona fide sale occurred
between the parties. Lee, as agent, was responsible for the
marketing, resale, and forwarding of the produce in the U.S. for
Green Giant. In HRL 543848 Customs found that although
importations from the same asparagus growers by Lee for their own
account were imported on consignment, transaction value of
identical or similar merchandise (section 402(c)) based on Green
Giant's importations was appropriate. Because by the time of the
entries at issue the Green Giant-Mexican growers joint venture
had terminated, it would be inappropriate to value the subject
importations using the Green Giant bases of appraisement
articulated in these decisions. This holds true regardless of the
fact that the same growers and fields are utilized and that Lee
maintains the books enabling it, from the point where the joint
venture terminated, to incorporate field amortization and related
expenses in its season-end cost reports.
Because there is not a transaction value, we proceed
sequentially through the subsequent provisions of section 402 of
the TAA. The first alternative basis of appraisement is the
transaction value of identical or similar merchandise. Section
402(c) of the TAA provides that the transaction value of
identical or similar merchandise is the transaction value,
accepted as the appraised value under section 402(b), of
merchandise identical or similar to the merchandise currently
being appraised which was exported to the U.S. at or about the
time that the merchandise currently being appraised was exported
to the U.S. With the understanding that the instant goods cannot
be appraised under section 402(c) in accordance with HRL 543848
and that no identical or similar merchandise is available for
appraisement consistent with the analysis employed in HRL 545755,
supra, it would be appropriate to resort to the next alternative
method of appraisement, deductive value, as set forth in section
402(d).
When utilizing deductive value, the subject merchandise is
appraised based on the price at which the merchandise concerned
is sold in the U.S in its condition as imported, in the greatest
aggregate quantity at or about the date of importation of the
merchandise being appraised. Section 402(d)(2)(A)(i). If the
merchandise concerned is sold in the U.S. in its condition as
imported, but not sold at or about the date of importation, the
price at which the merchandise is sold in the greatest aggregate
quantity after the date of importation, but before ninety days
after such importation, is utilized. Section 402(d)(2)(A)(ii).
The unit price at which merchandise is sold in the greatest
aggregate quantity means the unit price at which it is sold to
unrelated persons at the first commercial level after
importation. Section 402(d)(2)(B).
Furthermore, the price determined under section 402(d) 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....
Section 402(d)(3)(A)(i)-(iv).
Based on the information provided, we find that deductive
value serves as the appropriate method of appraisement. In
response to the points raised by counsel concerning the manner in
which Customs arrived at the deductive value for the subject
importations, we provide the following. With regard to the fact
that Customs bases its deductive values on weekly figures which
do not account for price adjustments to the instant importations,
sometimes taking several months to finalize, we stress that
section 402(d)(1) provides that "merchandise concerned" as
provided in section 402(d) means the merchandise being appraised,
identical merchandise, or similar merchandise. In other words,
all three types of merchandise may be utilized for appraisement,
but there is no indication that one type must have priority over
the other. Hence, from a practical standpoint, while Customs
generally concerns itself with the sale of the goods being
valued, it is not precluded, based on the information available
at or about the date of importation, from utilizing on-going
sales of identical or similar goods for appraisement. Customs is
not required to wait until the instant goods actually are sold or
the necessary information concerning such sales is made
available. Assuming such prices otherwise fit the criteria and
definitions set forth in section 402(d), they may serve as
appropriate bases for appraisement.
Insofar as prices and information are available for sales of
particular sizes and weights, it would be appropriate to utilize
the price at which the greatest aggregate quantity of the instant
or identical merchandise is sold in its condition imported at or
about the date of importation of the instant merchandise. In
cases where data for particular sizes and/or weights is
unavailable and deductive value is based on asparagus sales of
different sizes and/or weights, the appraising officer would be
employing "all reasonable ways and means in his power" and
"consider[ing] the best evidence available in appraising
merchandise" in accordance with section 500 and the Statement of
Administrative Action to the TAA.
Finally, with regard to the commission percentage to be
deducted from the price, we reiterate that section
402(d)(3)(A)(i) provides for a deduction from the price for the
amount of any commission usually paid or agreed to be paid, in
connection with sales in the U.S. of imported merchandise of the
same class or kind. Accordingly, we recognize that where a
deductive value is based on the price at which the instant
merchandise is sold it would be appropriate to deduct the
commission percentage remitted to Lee insofar as evidence does
not indicate that such amounts do not reflect those "usually"
paid or agreed to be paid in accordance with section
402(d)(3)(A)(i). However, it should be noted that in cases where
deductive value is based on the price at which identical or
similar merchandise is sold, it would be appropriate to deduct
the amounts for those actual commission percentages unless
evidence that such amounts are not "usual" is presented. In any
event, contrary to counsel's statement that Lee's commission
routinely is approximately [****] or [****] percent, and Customs
authorized a deduction of only ten percent, the submitted sample
contract provides for Lee's service fee of [****] percent on all
U.S. domestic and Canadian sales and [****] percent on all sales
to destinations outside the U.S. and Canada.
HOLDING:
Based on the information provided, in accordance with the
foregoing, deductive value is the appropriate method of
appraisement, without resort to average price adjustments based
on pre-selected crate equivalents.
You are directed to deny the protest in accordance with the
foregoing. A copy of this decision with the Form 19 should be
sent to the protestant.
In accordance with Section 3A(11)(b) of Customs Directive 099
3550-065, dated August 4, 1993, Subject: Revised Protest
Directive, this decision 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 of 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 to the
public via the Diskette Subscription Service, the Freedom of
Information Act and other public access channels.
Sincerely,
Acting Director
International Trade Compliance
Division