RR:IT:VA 548184 LR
Susan Kohn Ross, Esq.
Rodriguez O'Donnell Ross
Fuerst Gonzalez & Williams
5777 W. Century Blvd., Suite 520
Los Angeles, CA 90045-5659
RE: Reconsideration of HRL 548093; Price Actually Paid or Payable; Warranty Support Payments; 19 CFR §158.12
Dear Ms. Ross:
This is in response to your letter of August 5, 2002, on behalf of Yamaha Corp. of America (Yamaha America), requesting reconsideration of Headquarters Ruling Letter (HRL) 548093, issued to you on April 26, 2002. With your request you submitted some additional evidence in support of your claims This office conducted a telephone conference with you on November 1, 2002.
The ruling in question addressed importations of musical products purchased by Yamaha America from Yamaha Corporation of Japan (Yamaha Japan). The issue presented concerns the treatment of certain warranty support payments made by Yamaha Japan to Yamaha America in determining transaction value.
The payments at issue are made by Yamaha Japan pursuant to Section 4 of a 1990 Distribution Agreement (Agreement) between Yamaha America and Yamaha Japan. This section, entitled "Warranty and Service Responsibilities", provides that Yamaha America is responsible for establishing and maintaining a warranty program for the products purchased, and that Yamaha Japan is obligated to offer warranty support to Yamaha America. Pursuant to section 4.4, Yamaha Japan is required to pay Yamaha America monetary support for the listed product lines. In each case, the amount to be paid is based on a specified percentage of the FOB price. The specific percentage varies by product line. According to the information provided, the agreed upon amounts are determined based on historical records of defects and repair costs and monthly comparisons and analyses of the actual incurred costs and the allowances granted. In addition, the commercial invoice for each imported product will show a deduction in price for the applicable warranty support payment. Thus, if the invoice price of a piano is $1000 and if the specified percentage for warranty support for pianos is 10%, the invoice price would reflect a $100 deduction and would be shown as $900. However, the price paid to Yamaha Japan would still be $1000. The $100 warranty support amount would be paid by Yamaha Japan to Yamaha America after importation in accordance with Section 4 of the Agreement.
In your ruling request, you asked that we rule that the price actually paid or payable for the imported products is the "net price" shown on the invoice, i.e., the price paid by Yamaha America to Yamaha Japan less the monetary support amount to be remitted from Yamaha Japan to Yamaha America (i.e., $900 in the above example). In the alternative, you asked us to grant a defective merchandise allowance pursuant to 19 CFR § 158.12 in the amount of these payments.
In HRL 548093, April 26, 2002, Customs ruled that no deduction from the price actually paid or payable is authorized. Specifically, Customs determined that the payments at issue made after importation are " rebates . . made or otherwise effected between the buyer and seller after the date of importation of the merchandise into the United States" within the meaning of 19 U.S.C. §1401a(b)(4)(B) and that pursuant to this provision such rebates are to be disregarded in determining transaction value. With regard to the defective merchandise claim, Customs determined that insufficient evidence was provided to support the claim. Specifically, Customs took note of the fact that the amounts in question are estimates only, that such amounts cannot be tied to specified entries, and it is not possible to show a link in the diminution in value to defects in specific merchandise to particular entries, citing the Samsung decisions.
In your request for reconsideration, you contend that the payments at issue are not properly characterized as rebates made or effected after the date of importation. Although you acknowledge that the amounts at issue are paid after importation, you point to the fact that they are agreed to well in advance of the importation and in fact, are specified in the Agreement. In essence, you claim that the parties agreed to a formula for determining the price which was established prior to importation. You claim that under these circumstances the timing of the payment is not relevant.
We disagree with this argument. Although Customs has ruled that a post importation adjustment should be taken into account in determining transaction value where there is a formula for determining the price in effect prior to the date of exportation, there is no such formula here. The warranty support amounts to be paid by Yamaha Japan after importation were not made pursuant to a formula for determining the price. Section 5.4 of the Agreement, entitled "Price", indicates that the prices for the Products as of the date hereof are set forth on Exhibit "C" attached hereto. It further provides that the prices shall be changed as may be mutually agreed to by the parties. Section 5 also sets forth the method for determining the exchange rate. There is nothing in Section 5 or Exhibit C which establishes a formula for determining the price of the products based on warranty support rebates. Although over the years there have been various price changes, none reflects a deduction to the price based on warranty support payments. In addition, Section 4, which covers warranty and service responsibilities, simply provides that Yamaha Japan is responsible for providing monetary warranty support to Yamaha American for listed products lines and Exhibit B sets forth the amount of such monetary support for those products. Section 4 makes no provision for any adjustments to the price. As such, we disagree with your argument that the parties agreed to a formula prior to exportation for determining the price based on the price paid by Yamaha America less the warranty support payments. Accordingly, we adhere to our previous determination that the monetary support payments are not to be taken into account in determining transaction value.
With regard to the defective merchandise claim, you take issue with the statement in HRL 548093 that the amounts paid cannot be tied to specified entries. You indicate that Yamaha is able to track each defective instrument to a particular entry. To support your claim, you have submitted an "Entry by Entry Date Report", which links every entry to a commercial invoice, and a second report entitled "YCJ Serv Allowance", which shows the breakdown of the allowance by invoice, by division and by product covered by the Agreement. In the body of the report, the applicable rebates are shown.
We find that the information submitted is still deficient. It is not enough to correlate the warranty payments with particular invoices and entries. Rather, the Samsung cases make it clear that the payments must be correlated with particular imported products that are defective. The Court of International Trade stated that to make a section 158.12 claim, a claimant should provide a specific description of the damage or defect alleged and, in some manner, relate that defective merchandise to a particular entry (emphasis added). Samsung Electronics America, Inc. v. United States, 23 CIT 2, 8, 35 F. Supp. 2d 942 (1999). In affirming this decision, the Court of Appeals for the Federal Circuit stated that we agree with the CIT's decision and interpret 19 C.F.R. §158.12 to require Samsung to prove that a specific entry contained defective merchandise and what the allowance in appraised value for each entry should be. Samsung Electronics America, Inc. v. United States, 195 F.3d 1367, 1371 (Fed. Cir. 1999).
In this case, Yamaha Japan pays the agreed upon warranty support percentage on every imported product referenced in Section 4 of the Distribution Agreement, not just on defective products. In fact, Yamaha has submitted no evidence of alleged defects on specific products and no evidence linking the payments to specific defective products. Therefore, merely correlating the payments to specific invoices and entries of those products does not satisfy the Court's criteria for establishing a defective merchandise allowance. Although you also take issue with the statement in the ruling that the warranty support payments are based on estimates and claim that Yamaha maintains actual repair cost figures by product at the invoice and entry level, no such evidence was provided.
In sum, we find that the submitted evidence is not sufficient to establish either the existence or extent of alleged defects on the imported products and that no allowance in accordance with 19 CFR §158.12 is warranted.
Based on the above considerations, HRL 548093 is affirmed.
Sincerely,
Larry L. Burton
Acting Director, International
Trade Compliance Division