RR:IT:VA 547273 KCC
Peter W. Klestadt, Esquire
Grunfeld, Desiderio, Lebowitz & Silverman LLP
245 Park Avenue
33rd Floor
New York, NY 10167-3397
RE: Retroactive price increase; transaction value; price paid or payable; HRL 542797; SAA
Dear Mr. Klestadt,
This is in response to your letter dated January 11, 1999, wherein you requested a ruling on behalf of your client, E.T.I.C, concerning the dutiability of certain funds that E.T.I.C. may remit to its foreign vendor in the form of retroactive price increases in connection with duty refunds on previously imported merchandise.
FACTS
E.T.I.C. is an importer of canned tomato products from Italy. Over the past several years E.T.I.C. has imported these products under subheading 2002.10, Harmonized Tariff Schedule of the United States (“HTSUS”). However, after a series of recent court decisions, these products are now properly classified under subheading 2103.60.90, HTSUS, which has a lower rate of duty than subheading 2002.10, HTSUS. See, Orlando Food Corp. v. U.S., Slip Op. 97-1335 (Fed. Cir. April 6, 1998).
E.T.I.C. filed several protests as a result of these court decisions and is receiving duty refunds in connection with past importations. E.T.I.C.’s major unrelated supplier, C.M.D.O., has requested that E.T.I.C. share a portion of these duty refunds by retroactively adjusting prices of the previously imported goods. By sharing a portion of this windfall, E.T.I.C. expects to foster continued goodwill with C.M.D.O. and show its gratitude for C.M.D.O.’s previous commitment towards negotiating a competitive price. You have stated that at no time was the price of previously imported merchandise ever contingent on E.T.I.C. receiving duty refunds on the merchandise and that E.T.I.C. is under no obligation to make any additional payment to the
supplier. As of the date of your ruling request, E.T.I.C. had not yet remitted any funds to C.M.D.O. with respect to these duty refunds.
ISSUE
Is a retroactive price increase between unrelated parties agreed to after the merchandise was imported into the U.S. taken into account when determining the transaction value of the imported merchandise?
LAW AND ANALYSIS
Merchandise imported into the United States is appraised in accordance with §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 is transaction value, which is defined in §402(b) of the TAA as the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus certain statutorily enumerated additions. The term “price actually paid or payable” is more specifically 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.
Changes in the price actually paid or payable which are arrived at subsequent to the time of importation shall not be taken into account in determining transaction value. Statement of Administrative Action (“SAA”), H.R. Doc. No. 153, (96 Cong., 1st Sess., pt. 2 (1979)) reprinted in Department of the Treasury, Customs Valuation under the Trade Agreements Act of 1979 at 46, (October 1981). In Headquarters Ruling Letter (“HRL”) 542797 dated May 19, 1982 (TAA #48; C.S.D. 82-126), Customs determined that retroactive price adjustments between related parties agreed to after the merchandise was imported did not affect the transaction value of the imported merchandise. Customs found that, at the time the goods were sold for exportation, the price between the parties was firm and the parties did not intend the price to be subject to an adjustment. However, due to unforeseen circumstances, i.e., currency fluctuations, the parties agreed to an increase in price. Thus, the price of previous shipped merchandise was retroactively increased. HRL 542797 determined that the additional payments represented retroactive adjustments to the agreed price and were not part of the price actually paid or payable. We note that HRL 542797 determined that the parties’ relationship did not affect the price. Thus, transaction value was an acceptable method of appraisement.
In this case, like HRL 542797, we find that the retroactive price increase does not affect transaction value. The price actually paid or payable, in this situation, is represented by the invoices submitted to Customs which represent the original contract price. Those prices were the prices in effect when the merchandise was sold for exportation to the United States. Based on the evidence submitted, E.T.I.C.’s retroactive price increase was not agreed to prior to exportation. The contract price was not contingent upon the duty refund. E.T.I.C.’s sharing of the duty refunds with its unrelated supplier, C.M.D.O., will take place to foster continued goodwill and show E.T.I.C.’s gratitude for the supplier’s commitment towards negotiating a competitive price for the previously imported goods. Therefore, the price increase is not part of the price actually paid or payable for the previously imported merchandise.
HOLDING:
Based on the evidence submitted, the retroactive price increase agreed to between the unrelated parties after importation of the merchandise into the U.S. does not affect the transaction value of the imported merchandise. The price actually paid or payable for the imported merchandise when sold for exportation to the United States is the original invoiced amount.
Sincerely,
Thomas L. Lobred
Chief, Value Branch