VAL OT:RR:CTF:VS H023813 FP
Rick Van Arnam
Barnes, Richardson & Colburn
475 Park Avenue South
New York, New York 10016
RE: Valuation; transaction value method in 19 U.S.C. 1401a(b); transaction value of identical merchandise in 19 U.S.C. § 1401a(c); aluminum ingot and other value-added cast products made therefrom.
Dear Mr. Van Arnam:
This is in response to your letter requesting a ruling on behalf of Rio Tinto Alcan (“Rio Tinto”) as to the proper method of appraisement pursuant to 19 U.S.C. 1401a for aluminum imported into the U.S. under a proposed pricing formula.
FACTS:
Rio Tinto Alcan of Montreal, Quebec, Canada, is an exporter of aluminum ingot and other aluminum-derived products. According to its submission, Rio Tinto's prices for aluminum ingots sold into the U.S. are constructed using as a basis the price of aluminum on the London Metal Exchange ("LME") as adjusted for a regional premium. This price is known in the industry as the "Mid West Transaction Price" and is published in Platts Metal Week, an independent industry publication. This published Mid West Transaction Price covers pure aluminum, which is commonly known in the industry as "remelt." The price at which Rio Tinto currently sells remelt ingot is known as "m 1", which is the monthly average of the daily closing Mid West Transaction Price, as published in Platts for the month before the shipment. Therefore, Rio Tinto’s price is known before the shipment date and is based on the average of a published market price. The invoice accompanying the shipment reflects the "m 1" price. Rio Tinto states that it sells remelt ingot to both related and unrelated parties at the "m 1" price.
Rio Tinto also uses the Mid West Transaction Price, as published in Platts, to calculate the price of alloyed aluminum. Rio Tinto sells sheet ingot and other value added cast products, such as alloyed aluminum cast into sheet ingot or other forms, at a price calculated using the same "m 1" Mid West Transaction Price. The price of remelt ingot is increased to include the costs associated with alloying the metal and casting it into sheet ingot or other shapes. This "premium" captures the additional cost and is calculated from Rio Tinto’s cost data from the previous year, so the premium is known at the time of shipment. Therefore, as is the case with sales of remelt ingot, the price payable for sheet ingot and other value added cast products, "m 1 + the premium," is known at the time of shipment and is reflected on the invoice accompanying the shipment. As with remelt, Rio Tinto claims to sell sheet ingot and other value added cast products at this price to both related and unrelated parties.
Rio Tinto is contemplating changing the pricing on some of its transactions from "m 1" and "m 1 + the premium" (the “traditional price methods”), to "m 0" and "m 0 + the premium” (the “alternative price methods”), with "m 0" constituting the monthly average of the daily closing Mid West Transaction Price during the month of shipment. Thus, going forward, Rio Tinto would sell some of its remelt ingot at "m 0" and some of its sheet ingot and other value added cast products at "m 0 + the premium." Rio Tinto claims that the majority of its sales, however, will continue to be made under the traditional price method.
Under the alternative price method, the price payable by the importer will be unknown at the time of shipment because the formula for calculating it is pegged to the average of the Mid West Transaction Price published in Platts for the month that the shipment is made. The invoice accompanying the shipment would recite a "provisional price." The importer will pay the invoice that recites the provisional price. Thereafter, on a monthly basis, Rio Tinto would calculate the "m 0" price for remelt ingot or the "m 0 + the premium" price for sheet ingot and other value added cast products, and issue to its customer either a debit or credit memo reflecting the change in price based on the difference between "m 1" and "m 0."
Like the "m 1" and "m 1 + the premium" pricing, Rio Tinto claims it will use the "m 0" and "m 0 + the premium" pricing on sales to both unrelated and related parties. For example, pursuant to a long term supply contract, Rio Tinto will continue to sell to a large unrelated customer a certain designated quantity of sheet ingot and other value added cast products at the traditional prices that are based on "m 1 + the premium" but also sell an additional quantity of sheet ingot and other value added cast products at the alternative prices based on "m 0 + the premium." In addition, Rio Tinto plans to offer a volumetric discount on purchases that are priced using the "m 0" or "m 0 + the premium” method as an incentive for buyers to use the alternative pricing. Rio Tinto would know at the end of each month whether or not the required volume has been met to trigger the discount. This discount, if triggered in any given month, would be reflected on the debit or credit memo issued for that month, as discussed above.
ISSUE:
Whether the alternative methodology described above constitutes a formula for purposes of determining the price actually paid or payable of aluminum products sold for exportation to the United States?
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 value, 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).
Section 402(b)(4)(B) of the TAA provides that any rebate of, or other decrease in, the price actually paid or payable made or otherwise effected between the buyer and seller after the date of importation of the merchandise will be disregarded in determining transaction value. See also 19 CFR 152.103(a)(4). However, we have ruled that if the decrease in price is pursuant to a formula which was in existence prior to the date of exportation, such decrease will not be disregarded. See Headquarters Ruling Letter ("HRL") 544944, May 26, 1992.
In this regard, section 152.103(a)(1), Customs Regulations (19 CFR 152.103(a)(1)) provides that in determining transaction value, the price actually paid or payable will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula, such as the price in effect on the date of export in the London Commodity Market.
Customs has issued several rulings on the subject. As noted in TAA 47 (Headquarters Ruling Letter (HRL) 542701 dated April 28, 1982), the phrase “price in effect on the date of export” should be interpreted to mean that the price actually paid or payable may be determined by application of a formula, provided the final sales price for the imported merchandise can be quantified at the time of importation. Only the methodology must be fixed at the time of importation; the actual amount can be calculated at a later date.
In HRL 544346, September 11, 1990, we emphasized that a formula in a contract can be acceptable under transaction value if it is a formula that is based on a future event over which neither the seller nor the buyer has any control. It must be an objective standard over which neither the buyer nor the seller has control, such as the price in effect on the date of export in the London Commodity Market, the example of an acceptable means of a formula used to determine the price actually paid or payable for the imported good cited in 19 CFR 152.103(a)(1).
In HRL 545242, April 16, 1996, we found that because the parties exercised control over whether and to what degree the price would be adjusted in response to changing market conditions, the pricing methodology could not be considered a “formula” within the meaning of 19 CFR 152.103(a)(1) and transaction value was eliminated as a basis of appraisement.
In the instant case, the formula is based on precisely the same objective standard cited in the regulations, the average market price of aluminum on the LME, over which neither the seller nor the buyer have any control. The existence of a volumetric discount, to the extent that it was in effect prior to importation, is outside both seller and buyer control as well. Quantity or volume discounts are standard terms in many commercial transactions. Accordingly, we find that the pricing formula constitutes the price actually paid or payable for the imported merchandise.
A secondary issue arises regarding the acceptability of those transaction values between related parties. 19 U.S.C. 1401 a(b)(2)(B) provides that the transaction value between a related buyer and seller is acceptable if an examination of the circumstances of the sale of the imported merchandise indicates that the relationship between the parties did not influence the price actually paid or payable, or if the transaction value of the imported merchandise closely approximates certain test values. If it is shown that the buyer and seller, albeit related, buy and sell to each other as if they are not related, this will demonstrate that the price has not been influenced by the relationship.
According to the information provided by Rio Tinto, the related-party price will be settled in a manner consistent with the way the seller established prices for sales to unrelated buyers, indicating that the price has not been influenced by the relationship. Therefore, for purposes of acceptability under 19 U.S.C. 1401 a(b)(2)(B), we assume that Rio Tinto’s prices will not be influenced by the relationship.
For the reasons stated above, we find that the price according to the alternative pricing method constitutes an acceptable transaction value as contemplated by section 402(b) of the TAA.
HOLDING:
As set forth above, the subject merchandise may be appraised using the alternative price method based on the formula “m-0” or “m-0 + the premium”, which constitute valid transaction values pursuant to 19 U.S.C. § 1401a(b).
To underscore the requirement that the formula be in effect prior to importation, we direct your attention to sections 508 and 509 of the Tariff Act of 1930, as amended (19 U.S.C. §§1508-1509), which set forth the general recordkeeping requirements for Customs-related activities and the procedures for the production and examination of those records, respectively. Recordkeepers who cannot produce entry records to Customs within a reasonable time after a demand for their production is made may be subject to recordkeeping penalties under 19 U.S.C. §1509(g).
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs official handling the transaction.
Sincerely,
Monika R. Brenner
Chief, Valuation & Special Programs Branch