VAL OT:RR:CTF:VS H092448 EE
Steven W. Baker
Law Offices of Steven W. Baker
448 Ignacio Boulevard #323
Novato, CA 94949-9802
RE: Importer of Record; 19 U.S.C. § 1484; Bona Fide sale; Transaction Value; 19 U.S.C. § 1401a(b)
Dear Mr. Baker:
This is in reply to your letter, dated October 20, 2009, on behalf of XXX, as to whether XXX may continue to enter the merchandise at issue into the U.S. as importer of record and the proper appraisement of the merchandise under the proposed Managed Inventory Program.
FACTS:
XXX is an importer and processor of sputtering targets, electroplating anodes, and high purity consumable parts supporting sputtering technology. In addition, XXX imports raw and semi-finished materials used to produce these items, and supporting materials. All purchases are made from the company’s parent, YYY, Tokyo, Japan.
Under current procedures, XXX makes purchases on a DDP basis, with 120 day payment terms, from YYY. Title to the goods passes on delivery. XXX makes entry of the goods into the U.S. based on the sales invoices. Prices are negotiated between YYY and XXX to provide XXX with a guaranteed margin on its re-sales to customers, with renegotiations on a periodic basis as prices to customers change. The merchandise is entered and appraised on the basis of transaction value. Imports of finished goods are resold in their condition as imported. Raw and semi-finished materials are processed by XXX, or its subcontractors, into finished products. XXX recoups the cost of processing from the sale price to the end customer.
XXX already has managed inventory programs in place with several end customers. These customers require that the supplier (XXX) maintain an inventory of merchandise at the customer’s location. When a customer removes the goods from that inventory, it is considered sold on that date by XXX to the end customer, and appropriate invoices are generated and payments made. All of these agreements include provisions that require the end customer to purchase any goods that remain in inventory for 90 days, with the sale date being the conclusion of the 90 day period.
The New Program
Beginning with shipments made April 1, 2010, the companies intend to adopt a Managed Inventory Program. The Managed Inventory Procedure entered into between the companies spells out the specifics of the new program under which the companies will retain their roles as supplier (YYY) and reseller (XXX), with XXX making its purchases from the parent corporation, and directly interacting with the end customers. YYY will continue to ship the goods to XXX on a DDP basis but will retain title to the goods after importation, until the issuance of an invoice in response to a purchase order from an end customer or the passage of a specific period of time. The changes will be the delay in the passage of title of the goods and linking payment dates to sale dates, and the processing of the raw and semi-finished materials by XXX.
You state that a transfer price will be used to invoice the goods for export to the U.S., as the sales price will not be finally determined until after entry of the goods. The transfer price will be the current resale price to the end customers on the date of shipment by XXX for identical products minus a fixed margin for XXX and a further reduction in the amount of processing costs in the U.S. for raw and semi-finished materials. You advise that the transfer prices will be updated regularly, causing them to reflect the most recent actual sales price for the goods. You state that in most cases, the transfer price used for entry purposes will be the same as the sales price.
You state that the purpose of the new procedure is to better regulate cash flow for XXX. Under the current procedure, payments are due to YYY on fixed dates following the entry of the goods, and not related to the income from XXX’s resale. Under the new procedure, payment to YYY will be related to XXX’s resale of the merchandise, evening out the cash flow for XXX.
You submitted a copy of the Managed Inventory Procedure. You also submitted a copy of the pricing history of products with your letter dated January 12, 2010.
ISSUES:
Whether XXX may enter the merchandise into the U.S. as importer of record under 19 U.S.C. § 1484.
What is the correct basis of appraisement of the imported merchandise under 19 U.S.C. § 1401a?
LAW AND ANALYSIS:
Right to Make Entry
Under 19 U.S.C. § 1484(a)(1), only parties qualified as the “importer of record” may make entry of imported merchandise. According to 19 U.S.C. § 1484(a)(2)(B), parties qualified to be an importer of record are the owner or purchaser of the merchandise or, when appropriately designated by the owner, purchaser, or consignee of the merchandise, a licensed customs broker.
The terms “owner” and “purchaser” for right-to-make-entry purposes are defined in U.S. Customs and Border Protection (“CBP”) Directive 3530-002A, dated June 27, 2001 as “any party with a financial interest in a transaction, including, but not limited to, the actual owner of the goods, the actual purchaser of the goods, a buying or selling agent, a person or firm who imports on consignment...” CBP Directive 3530-002A, at section 5.3.1.
You state that under the proposed Managed Inventory Program, XXX and YYY will retain their roles as supplier (YYY) and reseller (XXX), with XXX making its purchases from the parent corporation, and selling the merchandise in the condition as imported or after further processing to the end customers. Based on your description, XXX is the purchaser of the merchandise. Accordingly, we find that XXX would be entitled to serve as the importer of record on the entry documents for the merchandise at issue.
Valuation
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 the merchandise when sold for exportation to the United States,” plus amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. 19 U.S.C. § 1401a(b)(1). If, for any reason, sufficient information is not available with respect to the additions to the price actually paid or payable, the transaction value of the imported merchandise is treated as one that cannot be determined. 19 U.S.C. § 1401a(b)(1).
Inasmuch as the transaction value method requires a sale for exportation to the U.S., there must exist a bona fide sale between the buyer and seller in order for merchandise to be appraised accordingly. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the Court of Appeals for the Federal Circuit found that the term “sold” for purposes of 19 U.S.C. § 1401a(b)(1) means a transfer of title from one party to another for consideration, (citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). However, several factors may indicate whether a bona fide sale occurs between a potential buyer and seller of imported merchandise. In determining whether property or ownership has been transferred, CBP considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, CBP 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. See HQ 547197, dated August 22, 2000; HQ 546602, dated January 29, 1997.
You state that the under the Managed Inventory Procedure, YYY will continue to ship the goods to XXX on a DDP basis, but retain title to the goods until the date of sale specified in the procedure. “DDP” or “Delivery Duty Paid” is a term of sale, which means that the seller fulfills his obligation to deliver when the goods have been made available at the named place in the country of importation. See Incoterms 2000, International Chamber of Commerce, 121 (1999). Consequently, the buyer assumes all risk of loss or damage to the goods from that point. Id. at 123.
You state that the title to the imported merchandise does not pass to XXX until either issuance of an invoice in response to a purchase order from an end customer or the passage of a specific period of time. In HQ 548236, dated March 27, 2003, the importer did not take title to the merchandise or become obligated to pay until the merchandise was withdrawn from a third party’s center for production replenishment (“CPR”). The importer was not required to withdraw the merchandise from the CPR. The merchandise was entered by the importer at the contract price in effect at the date of exportation. However, the importer paid the supplier based on the price at the time of withdrawal from the CPR. CBP held that a price was not agreed upon, and payment was not made, until the merchandise was withdrawn. Consequently, CBP determined that the merchandise was not sold for exportation to the U.S. Similarly, in HQ 548273, dated April 17, 2003, the title for goods and the risk of loss did not pass from the seller to the importer until the goods were withdrawn from the warehouses operated by a third party (i-HUBs). The importer was not obligated to purchase the merchandise unless it was withdrawn from the i-HUBs. The importer entered the goods at the price shown on the seller’s pro forma invoice, which was the price at the time of export. However, this was not the price the importer paid the seller for the goods. Rather, the price paid for the goods was based on the quarterly price when the goods were withdrawn from the i-HUBs. CBP held that the price was not set, and payment was not made, until the merchandise was withdrawn. Consequently, there was no sale for exportation. By contrast, in HQ H012659, dated November 14, 2007, CBP held that there was a bona fide sale for export. In that case, the seller issued a pro forma invoice on the date the merchandise left the seller’s plant. The seller subsequently issued a commercial invoice that was timed and reconciled to the pro forma invoice. The seller retained title to the merchandise until it was delivered to the importer or the pro forma invoice aged 63 days. The importer had to issue payment for the merchandise on the 63rd day of the pro forma invoice. CBP held that although title to the imported merchandise did not pass until after importation, the presence of other factors suggested that the transactions were bona fide sales for exportation to the U.S.
The facts of the instant case are similar to the facts of HQ H012659. As in HQ H012659, XXX is required to purchase the merchandise, either upon withdrawal, or on the 90th day (end customer inventory) or on the 120th day (XXX managed inventory) after entry into inventory. XXX must also issue payment for the merchandise within 120 days from the issuance of the monthly sales report prepared for YYY. You state that in most instances, XXX’s payments for the imported merchandise will be the same as the transfer price used for entry purposes. As we previously noted, XXX also bears the risk of loss for the merchandise when the goods are delivered to XXX at the named place of destination. Although title to the imported merchandise does not pass until after importation, the presence of these other factors suggests that the transactions at issue are bona fide sales for exportation to the U.S. Consequently, based on the evidence presented, we find that the subject merchandise can be appraised on the basis of transaction value, pursuant to 19 U.S.C. § 1401a(b).
You state that in most instances, the transfer price used for entry purposes will be the same as the sales price. Where price changes do occur, they are almost invariably price reductions to the end customers, resulting in sales prices somewhat below the transfer price. In a very small number of situations there may be a price increase to an end customer occurring after the transfer price is determined. You advise that in such situations, XXX will advise YYY, which will prepare a revised export invoice, reflecting the higher sales price. XXX will then file a post entry adjustment with CBP advising of that price increase. HQ 547395, dated November 21, 2001, involved a protest concerning post importation price increases due to increased costs of materials used in the manufacture of the imported products. Citing to Generra Sportswear Company v. United States, 905 F.2d 377, 380 (Ct. Int’l Trade 1990), CBP held that the price increases were included in the price actually paid or payable for the imported merchandise. In Generra, the court determined that so long as payment is made “to the seller in exchange for merchandise sold for export to the United States,” it is included in the price actually paid or payable. However, the payment will be excluded if the importer demonstrates that the payment was completely unrelated to the imported merchandise. See Chrysler Corporation v. United States, 17 CIT 1049 (September 22, 1993).
In HQ 547395, the importer asserted that the additional payments were unrelated to the imported merchandise because the price increase occurred after importation. CBP found that not only were the additional payments directly related to the imported merchandise, but that the circumstances giving rise to the additional payments were considered in advance by the parties. Although the invoices submitted by CBP represented the original contract prices, the documentation submitted also showed that, prior to exportation, the parties contemplated price adjustments in the event of a change of circumstances, such as an increase in the cost of plastics and silicon. It was also noted that “the contract between the parties, although not written, is evidenced by the parties’ subsequent conduct.” We find that the analysis and conclusions reached in HQ 547395 to be applicable to XXX’s situation. Accordingly, all payments made by XXX to YYY, including those that result from post-importation price increases, are part of the price actually payable for the imported components.
The post-importation price adjustments may result in a price decrease, in which case XXX will receive a refund in the amount of the price reduction. As a general rule, 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 the transaction value of the imported merchandise. 19 C.F.R. § 152.103(a)(4). Certain post-importation price reductions may be taken into account, however, if the price was established in accordance with a formula. See, e.g., HQ 544615, dated September 11, 1991, and HQ 544364, dated October 9, 1990. XXX has not provided any information with respect to whether the price adjustments were made pursuant to a valid formula. Accordingly, any adjustments that result in a price decrease shall be disregarded.
HOLDING:
Based upon the information presented, XXX has the right to make entry as the importer of record under 19 U.S.C. § 1484.
In conformity with the foregoing, the imported merchandise should be appraised under transaction value pursuant to 19 U.S.C. § 1401a(b).
Post-importation price increases are part of the price actually paid or payable for the imported merchandise, and accordingly, shall be taken into account in determining dutiable value.
Reference to this ruling letter should be made in the entry documents filed at the time the subject goods are entered. See CBP Form 7501 - Instructions, Additional Data Elements (available online at: www.cbp.gov). If the entry summary has been filed without reference to this ruling letter, the ruling letter should be brought to the attention of the appraising officer at the port of entry.
Sincerely,
Monika R. Brenner
Chief
Valuation & Special Programs Branch