VAL CO:R:C:V 544471 VLB
----------------, Esquire
--------------
----------------
New York, New York 10017-4608
RE: Determination of sale for exportation and dutiability of
freight charges for Mexican cement
Dear Sir:
This is in response to your letter dated March 15, 1990,
requesting a ruling on behalf of your clients -------------------
------------------------------------. (hereinafter referred to as
the "distributors"). You state that the distributors are not
presently doing business in the manner that you describe.
Therefore, we are treating this ruling as a prospective ruling.
FACTS:
You state that the distributors are related to and
controlled by ------------------------------------------------
corporation (herein after referred to as "C----"). C-----owns or
controls several cement mills in Mexico, including most of the
mills that produce cement that will be imported into the U.S.
C---------------------------------(hereinafter referred to as
"CI--"), a Mexican trading company controlled by C---- will
purchase cement from the mills. CI--'s sole business is
purchasing cement for export from Mexico. CI-- purchases from
the mills, F.O.B. Mill.
CI-- will in turn "sell" all of the cement destined for the
U.S. to -------------------------------------------.
(hereinafter referred to as "CITC"), an unrelated financial
institution. The terms of this sale will be F.O.B. Midbridge
U.S. Border for the land shipments, and C.I.F. U.S. Port of Entry
for the ocean shipments.
CITC will then "sell" the cement to --------------------.
(hereinafter referred to as "T------"), a --------------
corporation that is in the C---- organization. You state that
T------ is the exclusive distributor to the U.S. of cement
exported by CI--. The price of the merchandise between CI-- and
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CITC, and CITC and T------ will be the same. However, CITC will
retain a portion of the sales price it receives from T------ as
interest and fees. You further explain that the "sale" from CITC
to T------ will occur after the goods are exported from Mexico,
but prior to the importation into the U.S.
T------ will "sell" the cement to the related U.S.
distributors on a C.I.F. Port of Entry terms. Title to the
cement will pass from T------ to the distributors prior to
importation. The distributors will be the importers of record.
The merchandise will be shipped in two separate
transportation modes, ocean and overland. You state that the
ocean transportation requires overland shipment, usually by rail,
to an ocean terminal that is dedicated to shipments destined for
exportation to the U.S. All shipments from such ocean terminals
are directed to a U.S. port.
The overland transportation involves the merchandise being
shipped by truck from the mill to a rail terminal in the U.S.
ISSUES:
(1) Whether there is a sale for exportation for purposes of
transaction value.
(2) Whether the foreign inland freight, terminal, export
clearance and brokerage charges included in the C.I.F price paid
by the distributors can be excluded from the price actually paid
or payable for the merchandise.
LAW AND ANALYSIS:
As you know, transaction value, the preferred method of
appraisement, is defined in section 402(b) of the Tariff Act of
1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C.
1401a(b); TAA) as the "price actually paid or payable for the
merchandise when sold for exportation to the United States" plus
enumerated additions.
The "price actually paid or payable" is defined in section
402(b)(4)(A) of the TAA as "the total payment (whether direct or
indirect, and exclusive of any costs, charges, or expense
incurred for transportation, insurance, and related services
incident to the international shipment of the merchandise. . .)
made, or to be made, for the imported merchandise by the buyer
to, or for the benefit of, the seller. For purposes of this
ruling, we are assuming that transaction value will be the proper
method of appraisement.
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Initially, you contended that the transaction value for the
merchandise should be the price that the distributors paid
T------ for the merchandise, less the international and foreign
inland freight charges, and terminal and brokerage charges. You
stated on page 4 of your letter dated March 15, 1990, that the
sale from T------ to the distributors is a sale for exportation
to the U.S. because it is the transaction in which the goods are
delivered to the importer and the transaction in which title
passes to the importer. You also stated that either the sale
from the mills to CI-- or the sale from CI-- to CITC could also
be sales for exportation.
Subsequently, in a meeting with members of my staff, you
contended that the sale for exportation for transaction value
purposes is the sale between CI-- and CITC. By letter dated May
17, 1990, you submitted documentation covering sales of cement by
CI-- to CITC and the resales of the same merchandise by CITC to
T------.
The invoice in the transaction between CI-- and CITC
contains the terms of sale of "FOB Mexican Port/Border".
However, you stated in a telephone conversation with a member of
my staff that the contract between CI-- and CITC does not specify
terms of sale. Therefore, CI-- simply inserts the terms. CI--
can change the terms to CIF to conform with the documentation in
the other transactions. This is due to the fact that the CI-- -
CITC transaction is merely a financial transaction and the
intent of all of the parties is that the terms of sale be uniform
throughout the entire arrangement. Therefore, the terms of sale
between CI-- and CITC will be "C.I.F. Port of Entry".
Under these circumstances the same terms of sale ( C.I.F.
Port of Entry) will exist in each transaction after CI--'s
acquisition of the cement. Thus, title to the merchandise and
risk of loss will pass simultaneously from CI-- to the
distributors. CITC and T------ will hold title for an instant,
if ever.
As you know in HRL 544513, of this same date, we addressed
the transactions between the mills, CI--, T------, and
S--------, a related distributor, that have occurred in the past.
In that ruling we held that the sale for exportation for purposes
of transaction value occurred between CI-- and S-------- with
T------ acting as a selling agent for CI--. The amount that
S-------- paid to T------ over and above what T------ remitted to
CI-- was held to be a selling commission.
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From your submissions and conversations with my staff, it
appears that T------'s role in the prospective transactions will
remain the same as its role in the past. As in the past
transactions, T------ will not carry on activities in the U.S.,
and will have no physical presence in the U.S. Rather, T------
will simply be acting as agent on CI--'s behalf. T------ does
not maintain its own inventory of cement for sale to customers
of its choice in the U.S.
Rather, CI-- is determining what U.S. company is to receive
the merchandise. This is evidenced by the fact that from the
time the cement leaves the mill it is consigned to the
distributor's customer in the U.S. in the overland shipments or
to CI--'s ocean terminal dedicated to shipping to U.S. ports.
T------ simply facilitates the movement of the money paid by the
distributors.
In this prospective scenario, T------ remits, on behalf of
CI--, the distributors' payments to CITC as part of the financial
arrangement. That is, in these transactions, CITC will have
advanced monies to CI--. Trading will simply be repaying, on
behalf of CI--, the advanced monies plus interest and fees, to
CITC. The fact that the payment does not move directly from
T------ to CI-- does not defeat the fact that T------ is acting
on CI--'s behalf.
Similarly, CITC facilitates the flow of cement and money on
behalf of CI--. Like T------, CITC does not solicit customers
for the cement or carry an inventory of cement to sell on its own
behalf. Rather, it acts on behalf of CI-- pursuant to the
financial arrangement.
In sum, we have determined that the sale for exportation for
purposes of transaction value occurs between CI-- and the
distributors based on the fact that title passes directly from
CISA to the distributors. The amount that the distributors remit
to T------ is the price actually paid or payable for the
merchandise plus a selling commission to T------. The amount of
the selling commission is the sum that T------ retains after
forwarding a portion of the distributors' payments to CITC.
As previously stated, CI--, T------, and the distributors
are related parties as defined in section 402(g) of the TAA.
Therefore, the proposed transaction value based on the amount
remitted by the distributors to T------ must meet either the
"circumstances of the sale" test or the test value method for
determining the acceptability of a price in a related party
transaction.
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You have stated that the price paid by the distributors
"conforms to the statutory test that a related party price
approximate either the deductive value or the computed value of
the merchandise". While this may be true, we would like to point
out that the test value method requires that the "test" values be
values that have been previously accepted by Customs as
appraised values. The "test" value cannot be a hypothetical
deductive value or computed value of the merchandise that is
being appraised. The import specialist will make the final
determination of whether the relationship between CI--, T------
and the distributors affected the price.
The second issue involves the dutiability of the freight,
terminal, export clearance and brokerage charges that will be
included in the C.I.F.-Port of Entry price that the distributors
will pay. As previously stated, the price actually paid or
payable for the imported merchandise is the total price paid to
the seller, exclusive of any costs, charges, or expenses incurred
for transportation, insurance, and related services incident to
the international shipment of the merchandise form the country of
exportation.
In T.D. 84-235 (49 FR 46886), Customs amended 19 CFR
152.103(a)(5) covering the dutiability of foreign inland freight
and other services incident to the international shipment of
merchandise. The applicable provision of the amended regulation,
19 CFR 152.103(a)(5)(ii) contains the following language:
Sales other than ex-factory. As a general rule, in
those situations where the price actually paid or
payable for imported merchandise includes a charge for
foreign inland freight, whether or not itemized
separately on the invoices or other commercial
documents, that charge will be part of the transaction
value to the extent included in the price. However,
charges for foreign inland freight and other services
incident to the shipment of the merchandise to the
United States may be considered incident to the
international shipment of that merchandise within the
meaning of section 152.102(f) if they are identified
separately and they occur after the merchandise has
been sold for export to the United States and placed
with a carrier for through shipment to the United
States.
Subsection (iii) of the regulation requires that a through
bill of lading be presented to the District Director to meet the
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requirement in (ii) that a sale for export and placement for
through shipment has occurred. Only in those situations where it
is impossible to ship merchandise on a through bill of lading
will other documentation be accepted in lieu of a through bill of
lading.
You state that the ocean shipments require overland
shipment, usually by rail, to an ocean terminal that is dedicated
to shipments destined for exportation to the U.S. Thus, you
contend that when the cement leaves the mill for transportation
to an ocean terminal it has been placed on a carrier for through
shipment to the U.S. However, there will not be a single through
bill of lading. Nevertheless, you state that the evidence
required by 19 CFR 152.103(a)(5) will be present in view of the
fact that transport to an ocean terminal dedicated to shipping to
U.S. ports is exportation to the U.S. Under the regulation, we
must leave the decision to the import specialist and the District
Director as to whether sufficient evidence is provided to meet
the requirements of the regulation.
For the overland shipments, you state that there is a
through bill of lading issued either at the rail terminal or at
the mill when the mill is equipped with rail loading facilities.
This document covers shipment to a rail terminal in the U.S.
In those cases where the mill is equipped with rail loading
facilities and the merchandise is placed in a car at the mill,
and arrives in the same car in the U.S., the requirements of the
regulation may be met because there is a through bill of lading.
However, the import specialist must make that final determination
on this issue upon review of the documentation.
In those situations where the mill is not equipped with rail
loading facilities and the merchandise must be transported to a
rail terminal, the requirements of 19 CFR 152.103(a)(5) may be
harder to meet because two carriers may be involved. Here again,
the import specialist must make the determination on the
dutiability of the freight and related charges after review of
the documentation.
Finally, you state that the merchandise will sometimes be
shipped by truck from the mill to the delivery point in the U.S.
In this case if the shipment is in the hands of a single carrier
from the time that it leaves the mill, and the carrier can
provide the proper documentation, then the foreign inland freight
and related charges may be excluded from the transaction value of
the merchandise under 19 CFR 152.103(a).
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HOLDINGS:
(1) Title will pass simultaneously from CI--, to CITC, to
T------, to the distributors due to the fact that the terms of
sale are all C.I.F. Port of Entry. Therefore, the sale for
exportation is occurring between CI-- and the distributors.
T------ and CITC will simply be acting as agents for CI-- in
facilitating the flow of cement and money between the U.S. and
Mexico. The amount that the distributors will remit to T------
will include the price actually paid or payable for the imported
merchandise plus a selling commission. The amount of the selling
commission will be the amount that Trading retains after it has
paid CITC.
(2) The requirements for the exclusion of foreign inland
freight charges and related fees are set out in 19 CFR
152.103(a)(5). The import specialist must determine whether the
requirements of the regulations have been met after review of the
documentation.
Sincerely,
John Durant, Director
Commercial Rulings Division