VAL CO:R:C:V 544375 ML
District Director of Customs
Laredo, Tx 78044-3130
RE: Response to Request for Internal Advice
Regarding the Appraisement of Cantaloupes
Dear Sir:
This is in response to your request for internal advice,
dated July 8, 1988 (APP-9-L:CO CS), regarding the appraisement
of cantaloupes from Mexico. National Import Specialist ---------
------ made a detailed submission regarding this matter on July
21,1989. Various purchasing arrangements are described, some
with contracts and some which include cash advances by the buyer
to the seller. The response contained herein, addresses these
general purchasing arrangements. We regret the delay in
responding.
FACTS:
Various purchasing agreements exist between the buyer and
seller of fruits and vegetables from Mexico. Often cash
advances (sometimes referred to as "advances,""advance payments,"
or "interest free loans") are made by the buyer to the seller.
The existence of these payments or even their amounts are rarely
disclosed without a special request from Customs. The
seller/grower uses this money in whatever manner it wishes, but
often in land preparation, seed purchase, crop maintenance,
harvest and packing. The buyer may put thousands of dollars up
front without knowing how the crop will fare or what the market
will command. Recovery of these advances begins when deliveries
are made and can take several forms: reduction of payment of
individual invoices, weekly settlements, end of season
settlements, or a combination of the above. Should the crop be
poor or fail, the buyer carries that loss over to the next
season.
Buyers often refer to a "set" or "market" price as the
basis for their payment, i.e., the price actually paid or
payable. Neither "price" is verifiable as they are never
published. Identical merchandise, shipped from the same region,
on the same day, will often be invoiced and entered at different
prices. Additionally, two invoices are generally prepared for
each shipment. One invoice is for the Mexican government (called
the "Divisa" invoice) and the other is that from which payment is
made from the buyer to the seller. The Divisa invoice is about
1/2 that of the payment invoice. At the time of entry, the
broker presents the Divisa invoice to Customs along with a
worksheet adjusting the values to the price actually paid. Often
these worksheets have higher amounts for duty purposes.
ISSUE:
Whether transaction value is the proper method for the
appraisement of the merchandise?
LAW AND ANALYSIS:
The primary basis of appraisement is transaction value.
Transaction value is defined under section 402(b) of the Tariff
Act of 1930, as amended by the Trade Agreements Act of 1979, TAA;
as the "price actually paid or payable for the merchandise when
sold for exportation to the United States..." (emphasis added).
This is more specifically defined in section 402(b)(4)(A)) of the
TAA (19 U.S.C. 1401a(b)(4)(A)), as the following:
The term "price actually paid or payable"
means 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 from the country
of exportation to the place of importation in
the United States) made, or to be made, for
imported merchandise by the buyer to, or for
the benefit of, the seller.
In order to establish transaction value one must know the
amount actually paid or payable to the seller. Generally
speaking, it is the position of the Customs Service that all
moneys paid to the foreign seller are part of the "price actually
paid or payable" for the imported merchandise. Thus, if the
buyer is advancing cash amounts to the seller to begin the
production of merchandise, those advances will be treated as
being part of the "price actually paid or payable" for the
imported merchandise. While these advances are sometimes called
"loans", they are, in fact, payments for the produce made in
advance of receipt. These advances are, therefore, dutiable.
Where a contract exists, and prices and the amount and means of
recovering the advance are clear, we are satisfied appraisement
under transaction value is appropriate.
In situations where transaction value cannot be determined,
or cannot be used, section 402(a)(B) provides for the transaction
value of identical merchandise. The term "identical merchandise'
is defined in section 402(h)(2)(B) as:
...merchandise that is identical in all
respects to, and was produced in the same
country as, but not produced by the same
person as, the merchandise being appraised.
If a transaction value for identical or similar merchandise
under section 402(c) is available, then appraisement pursuant to
this section is proper. Of course, it is necessary that
sufficient information be available in order for Customs to make
any adjustment that may be necessary pursuant to section
402(c)(2). If Customs is not satisfied that the relevant
information is available, the use of transaction value of
identical or similar merchandise for appraisement purposes is
not proper and will be disallowed. The submission of a Divisa
invoice to Customs, accompanied by an adjusted worksheet that
cannot be verified, does not adequately provide the price
actually paid or payable. By copy of this response, we are
forwarding to the Director, Office of Trade Operations, the
question of the continued acceptability of these invoices.
In situations where the total amount for cash advances
cannot be determined or where contracts for the sale of
merchandise have no stated prices, transaction value does not
exist.
HOLDING:
Transaction value may be used in those cases where cash
advances made are to the seller by and for the benefit of the
buyer, if the amount and means of recovering these advances are
clear. Where no agreed upon price or a bona fide formula for
determining the price exists, or where cash advances are made but
the amount is not disclosed, transaction value under section
402(b) does not exist.
Sincerely,
John Durant, Director
Commercial Operations Division