RR:IT:VA 547826 CC
Port Director
U.S. Customs Service
Juarez/Lincoln Bridge
Administrative Bldg. #2
Laredo, TX 78040
RE: Application for further review of Protest No. 2304-99-100276;
19 U.S.C. § 1401a(d)(3)(A); Deductive value; Deduction for foreign inland freight
Dear Sir or Madam:
The above-referenced protest was forwarded to this office for further review. We have considered the facts and issues raised, and our decision follows. We regret the delay in responding.
FACTS:
The merchandise at issue is fresh melons imported from
Mexico and classified under subheading 0807.19.8000 of the Harmonized Tariff Schedule of the United States (HTSUS). The protest consists of approximately 78 entries. The dates of entry range from May 1, 1998, to November 20, 1998. The dates of liquidation range from May 21, 1999, to July 30, 1999.
The merchandise at issue was laden on a Mexican truck at the grower’s facility and shipped on a through bill of lading to the United States. After the merchandise was laden for export and before entering the United States, a Mexican customhouse broker cleared the shipment through Mexican Customs. After the merchandise was cleared through U.S. Customs, it was delivered to the importer’s premises.
The entries at issue were liquidated pursuant to 19 U.S.C. § 1401a(d), the deductive value method. Customs appraisement under the deductive value method included freight charges in Mexico (foreign inland freight) and Mexican customhouse broker charges.
This protest was filed on August 18, 1999. The protestant claims that pursuant to 19 U.S.C. § 1401a(d)(3)(A), foreign inland freight charges in Mexico and Mexican customhouse broker charges should be deducted to arrive at deductive value.
ISSUE:
Whether under the deductive value method, foreign inland freight may be deducted from the price pursuant to 19 U.S.C. § 1401a(d)(3)(A)(ii) for the subject merchandise imported from Mexico.
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 Agreements Act of 1979 (TAA: 19 U.S.C. § 1401a). The preferred method of appraisement is transaction valuation, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. 19 U.S.C. § 1401a(b)(1). The imported merchandise was shipped on consignment. Transactions involving goods which are shipped on consignment do not constitute bona fide sales. See Headquarters Ruling Letter (HRL) 546602, dated January 29, 1997. Consequently, the subject merchandise cannot be appraised using transaction value.
When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. 19 U.S.C. § 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)); deductive value (19 U.S.C. § 1401a(d)); computed value (19 U.S.C. § 1401a(e)); and the “fallback” method (19 U.S.C. § 1401a(f)).
The transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, of merchandise exported to the United States at or about the same time as that being appraised. (19 U.S.C. § 1401a(c)). In this case, there were no sales of similar or identical merchandise made at or about the same time as the merchandise imported that were identified. Thus it was not possible to appraise on the basis of the transaction value of similar or identical merchandise.
Under the deductive value method, merchandise is appraised on the basis of the price at which it is sold in the U.S. in its condition as imported and in the greatest aggregate quantity either at or about the time of importation, or before the close of the 90th day after the date of importation. 19 U.S.C. § 1401a(d)(2)(A)(i)-(ii). This price is subject to certain enumerated deductions. 19 U.S.C. § 1401a(d)(3).
The price determined pursuant to 19 U.S.C. § 1401a(d)(3)(A) shall be reduced by an amount equal to:
(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;
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;
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; and
(v) (but only in the case of a price determined under paragraph (2)(A)(iii)) the value added by the processing of the merchandise after importation to the extent that the value is based on sufficient information relating to cost of such processing.
As a general rule of statutory analysis, a statute is to be construed to carry out the legislative intent of Congress as reflected in the plain meaning of the language of the statute. If there are ambiguities in the plain language of the statute, the legislative history, as well as other extrinsic sources may be employed. Sandoz Chemical Works, Inc. v. United States, 43 CCPA 152, 156, C.A.D. 623 (1956). Other sources that could be employed would include agency interpretation.
The issue here is whether foreign inland freight is included in the deduction allowed for international freight pursuant to 19 U.S.C. § 1401a(d)(3)(A)(ii). The plain language of the statute does not reveal whether foreign inland freight was meant to be included in this provision. Neither is there any legislative history that sheds any light on this issue. This is similar to the transaction value statutory provisions, 19 U.S.C. § 1401a(b), which did not specifically address the deductibility of foreign inland freight. See All Channel Products v. United States, 787 F. Supp. 1457, 16 CIT 169, 170 (1992).
We must next look, therefore, to any agency interpretation. Unlike the deductibility of foreign inland freight for transaction value for which there are regulations (19 CFR § 152.103(a)(5)), there are no regulations in existence concerning foreign inland freight for deductive value. The only source we found that touches on this issue is a ruling we issued, HRL 545477, dated November 22, 1994.
HRL 545477 concerned the importation of canned tomatoes from Italy. The goods were sent first to Canada so as to structure the transaction to take advantage of an Italian export subsidy which did not apply to goods exported to the U.S. We determined transaction value did not apply since there existed a condition or consideration for which a value could not be determined. We found, therefore, that deductive value was the appropriate method of appraisement. The importer requested that freight charges from Italy to the United States be deducted under deductive value. We found that the goods were exported from Canada. Consequently, we disallowed a deduction for freight from Italy to Canada; however, we allowed a deduction for transportation costs from Canada to the U.S.
Although not specifically discussed in the ruling, the goods were shipped from Italy to Montreal, landed, and reloaded on a truck destined for the U.S. Thus, transportation from Montreal to the U.S.-Canada border would be considered foreign inland freight. Consequently, although not specifically addressed, we allowed a deduction for foreign inland freight under the deductive value method for merchandise exported from Canada in that ruling.
The protestant argues that “[b]ecause Congress identified and separately provided for two categories of transportation costs, after importation costs and pre-importation costs, a reasonable statutory interpretation is that Congress expressly intended to exclude all transportation costs from Deductive Value.” The protestant cites Campbell Soup Co. v. United States, 853 F. Supp. 1443, 18 CIT 440 (1994); 107 F.3d 1556 (CAFC 1997); affirming on the issue of freight costs.
We agree with protestant that there are two categories of transportation costs allowable for a deduction under the deductive value method, but we disagree on what they are. The statute provides for a deduction for domestic freight charges (those within the U.S.), 19 U.S.C. § 1401a(d)(3)(A)(iii) and for international freight charges, 19 U.S.C. § 1401a(d)(3)(A)(ii). Thus, the statute does not provide that all pre-importation transportation costs should be deducted. The statute provides that international transportation costs may be deducted, but the issue still remains as to whether that includes foreign inland freight.
Although the case cited by the protestant, Campbell Soup Co. v. United States, supra, does not support the protestant’s argument, we do agree that it does have some bearing on this issue. In Campbell, one of the issues was whether foreign inland freight should be deducted when using the computed value method. The plaintiff argued that the statute regarding transaction value, deductive value, and computed value should be read in pari materia. This means that in analyzing a statute the whole statute and every material part must be examined and the entire context considered. See Customs Law and Administration, Commentary, § 51.6, at 55 (3rd ed. 1999). The Court of International Trade found that even reading the valuation statute in pari materia, it does not indicate a legislative intent to exclude foreign inland freight from all appraisement determinations. In addition, the court found that the since the computed value method did not explicitly allow a deduction for freight charges, such charges are not deductible. This decision on freight charges was affirmed by the Court of Appeals for the Federal Circuit.
Specifically, the Court of International Trade stated the following at pages 448, 449:
…..Yet, even when considered in pari materia, as urged by plaintiff …, the various appraisement statutes simply do not indicate a legislative intent to exclude categorically inland freight costs from all appraisement determinations made pursuant to § 1401a. To the contrary, a review of the scheme established in § 1401a shows Congress adopted five discrete methods for determining the value of imported merchandise. See § 1401a(a)(1)(A)-(F) (setting forth the order in which the various appraisal methods apply); see also S. Rep. No. 249, 96th Cong., 1st Sess. 20 (1979), reprinted in 1979 U.S.C.C.A.N. 381, 500 (noting the appraisal methods have a “heirarchical” order and “order of priority”). …
Moreover, because Congress expressly provided for transportation costs in connection with the transaction and deductive value methods and indicated nothing in this regard in drafting the computed value statu[t]e, it would appear Congress did not intend to preclude Customs from using such costs in appraising merchandise under the computed value method.
Although the court found that the various methods of appraisement should not be read together so that either all or none of the methods should allow a deduction for transportation costs, it did compare the language of the various methods to find that a deduction was not allowed for transportation under the computed value method. Therefore, it would be proper to examine the language of the deduction for international freight under the transaction value and deductive value methods to see if there are any differences which would resolve this issue.
For transaction value, the relevant language for the deduction of international freight under 19 U.S.C. § 1401a(b)(4)(A) is for costs or charges “for transportation … incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States.” For deductive value, the relevant language for the deduction under 19 U.S.C. § 1401a(d)(3)(A)(ii) is the costs “of transportation … incurred with respect to international shipments of the merchandise concerned from the country of exportation to the United States.”
One difference in the language is that for transaction value the deduction applies “to the place of importation in the United States” while under deductive value the deduction applies “to the United States.” Thus, one could read this difference as stating that under deductive value, the deduction could apply to transportation in the United States. But this interpretation does not make sense because a deduction for domestic transportation is separately allowed under the deductive value statute. Consequently, this difference in language has no real difference in meaning.
The major difference in the language is that for transaction value the deduction is for “transportation incident to the international shipment” of the merchandise, whereas under deductive value the language is “with respect to the international shipment.” Although there is a slight difference in the language, we do not see it as a major difference indicating that for one method foreign inland freight may be deducted while in the other method it should not be. Again, there is no legislative history as to why the slight difference in the language for transportation costs for these two methods. All we have available is agency interpretation for foreign inland freight under the transaction value method.
Initially, the regulations did not allow a deduction for foreign inland freight under the transaction value method. Those regulations were amended by T.D. 84-235, effective November 29, 1984, to allow a deduction for foreign inland freight under the transaction value method. A major reason for the change was that since most freight charges from a contiguous country are for foreign inland freight, little or no adjustment for international transportation costs occurs for goods shipped from contiguous countries, although an international movement occurs. This created an anomalous situation with goods shipped from non-contiguous countries.
If we were to find that foreign inland freight were not deductible under the deductive value method, the same situation would exist that previously existed under the transaction value method. There would exist an anomalous situation as regards the deduction of freight between contiguous and non-contiguous countries. In addition, as stated above, we essentially allowed a deduction for foreign inland freight under the deductive value method in HRL 545477. Consequently, we find that since the importer had a through bill of lading, which we find is necessary here for the deduction, the deduction for foreign inland freight is allowed.
Also, the protestant claims that Mexican customhouse broker charges should be deducted to arrive at deductive value. In HQ 542267, dated April 3, 1981 (TAA No. 22), we found that a customhouse broker’s fee for entering imported merchandise should, as appropriate, be deducted either as a part of the addition usually made for general expenses, or as an associated cost of transportation from the place of importation to the place of delivery in the United States, if such cost is not included as a general expense. The charges of that case related to a U.S. customhouse broker fee. In addition, the deduction of that case related to domestic transportation, 19 U.S.C. § 1401a(d)(3)(A)(iii). Consequently, we do not believe that the Mexican customhouse broker charges are deductible based on that ruling, nor do we see a basis for the deduction under 19 U.S.C. § 1401a(d)(3)(A)(ii).
Neither would a deduction for the Mexican customhouse broker charges be allowed under the provision for general expenses, 19 U.S.C. § 1401a(d)(3)(A)(i). In HRL 546120, dated March 26, 1996, we ruled on whether certain expenses were deductible as general expenses under an adjusted deductive value method pursuant to the fallback method, 19 U.S.C. § 1401a(f). We found that if an expense was incurred after the merchandise was released from Customs custody, it is likely that it would not be a general expense made in connection with the sale of the imported merchandise in the United States. The Mexican customhouse broker charges would occur prior to release from Customs custody. Consequently, we find there is no basis for making a deduction for Mexican customhouse brokerage charges under 19 U.S.C. § 1401a(d)(3)(A).
HOLDING:
The protest should be GRANTED in part and DENIED in part. Under the deductive value method, foreign inland freight may be deducted from the price pursuant to 19 U.S.C. § 1401a(d)(3)(ii) for the subject merchandise imported from Mexico for which there was a through bill of lading. The Mexican customhouse broker charges may not be deducted pursuant to 19 U.S.C. § 1401a(d)(3)(A).
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries 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 make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Virginia L. Brown
Chief, Value Branch