VAL CO:R:C:V 544645 DPS
District Director
Portland, Oregon
RE: Application for Further Review of Protest No.
2904-9-000092; invoice prices vs. contract prices
negotiated prior to exportation
Dear Sir:
The subject protest and application for further review
concerns the appraisement of automobiles manufactured in
Japan by Fuji Heavy Industries Ltd. (FHI) and imported by
Subaru of America, Inc. (SOA). In addition to the subject
protest filed in Portland, Oregon, counsel has advised that
identical protests have been filed with Customs at Baltimore,
Boston, Jacksonville and Los Angeles.
FACTS:
The protests seek review of the appraisement of certain
imported automobiles at the final prices actually paid by SOA
to FHI. SOA purchased and imported the subject automobiles
pursuant to a temporary pricing arrangement under which the
commercial invoice for each shipment reflected tentative
prices which were to be finalized by negotiation. The
parties further agreed that if the final prices were less
than the tentative prices, FHI would reimburse SOA for the
difference. Counsel states that the final prices were set
prior to importation and, therefore, pursuant to 19 C.F.R.
152.103(a)(1), the goods should be appraised at the final
prices actually paid, rather than the higher invoice prices.
In support of SOA's position, counsel has provided the
following information. In 1989, SOA first imported two new
1990 model year Subaru automobiles, the "Loyale" and the
"Legacy," manufactured by FHI in Japan. FHI owns slightly
less than 50% of all of the outstanding shares of SOA, the
balance being publicly held. SOA purchased the automobiles
on an FOB basis, including packing and foreign inland freight
charges. The commercial invoices required payment within
five days, and SOA paid the invoices as they became due. SOA
was the importer of record and paid all customs duties.
Prior to shipment, counsel represents that SOA and FHI
expressly agreed that the prices stated on the commercial
invoices accompanying the initial importations would be
tentative, but that SOA would remit payment in accordance
with the invoice terms. The parties agreed to establish
final prices by negotiation as soon as possible. The parties
further agreed that any differences between the tentative and
final FOB prices on the subject shipments would be reimbursed
by the obligated party (i.e., by FHI if the final pricing was
less than the tentative, and by SOA otherwise).
These agreements are evidenced by documentation
submitted by counsel which consist of correspondence from FHI
explaining the arrangement described above. The memorandum
dated January 9, 1989, from FHI General Manager to President
of Fuji U.S.A. (FUSA), explains the temporary pricing of the
1990 model year Loyale automobiles, and indicates that Loyale
shipments would commence in January and includes a schedule
headed: "90 MY Loyale: Tentative FOB Price." A second
memorandum, dated February 14, 1989, from FHI Manager, First
Sales Secretary, to President of FUSA explains the temporary
pricing arrangement for the 1990 Legacy models. This
correspondence indicates that shipments would commence in
February and includes a schedule entitled "90 MY Legacy
Tentative FOB Prices." For both the Loyale and Legacy
models, the invoice prices were initially set at the
"Tentative FOB Prices" stated on the schedules referred to
above.
As stated in the correspondence submitted by counsel,
these prices were temporary until the final FOB pricing was
settled. Subsequently, the appropriate party would
compensate the other for any difference between the temporary
and the final prices. SOA entered the subject automobiles at
the tentative invoice prices.
Further documentation in the form of an affidavit from
the President of SOA, explains the tentative pricing
arrangement and states that SOA and FHI agreed to final
prices for the Loyale models during meetings in New Jersey on
February 8, 1989 and that the parties agreed to the final
prices for the Legacy models in Japan on February 28, 1989.
For both models the final prices are less than the tentative
prices at which the automobiles had been shipped and entered.
The commercial invoices were changed to state the lower,
final prices in May, 1989. A memorandum dated March 1, 1989
from the FHI General Manager to the President of FUSA
confirms that SOA and FHI had agreed to the final prices for
the Legacy models and encloses a schedule setting forth those
prices. Another memorandum from FHI to SOA sets forth in
detail the amount of the differences between the tentative
prices and the final FOB prices for both the Legacy and
Loyale models. Attached to the correspondence are pricing
schedules for each of the various Loyale and Legacy models
shipped to the U.S. The schedules set forth the tentative
prices originally charged for each model (as reflected on the
commercial invoices), the final FOB prices subsequently
agreed upon, the difference between the two prices and a
complete listing of all of the automobiles shipped to the
U.S. under the tentative pricing agreement, arranged by dates
of shipment. In total, these documents reflect the
following:
a. Legacy - 20,758 cars were shipped to the
U.S. at the higher, tentative FOB
prices, resulting in an overpayment of
$xxxxxxxx by SOA to FHI.
b. Loyale - 7,638 cars were shipped to the
U.S. at the higher, tentative FOB prices,
resulting in an overpayment of $xxxxxxxx
These figures were confirmed by SOA on May 8, 1989 by
correspondence from the SOA Finance Department to FHI. FHI
reimbursed SOA in the total amount of this overpayment by
wiring the funds to SOA's account on or around May 10, 1989.
ISSUES:
(1) Whether the transaction value of the subject
imported automobiles is the tentative (higher) FOB price
reflected on the commercial invoice, or the final (lower) FOB
price which the protestant claims was the result of price
negotiations prior to shipment.
(2) Whether the documentation submitted adequately
supports the protestant's contention that the new, lower
prices had been agreed upon prior to the exportation date of
the subject merchandise.
LAW & ANALYSIS:
For the purpose of this response, we assume that
transaction value, the preferred method of appraisement, is
applicable. Transaction value is defined in section
402(b)(1) 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 amounts for the
five enumerated statutory additions in 402(b)(1). The
"price actually paid or payable" is more specifically defined
in 402(b)(4) as: "The total payment (whether direct or
indirect...) 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 identity of the
seller and the amount actually paid or payable to him.
Section 402(b)(4)(B) of the TAA provides that "any
rebate of, or other decrease in, the price actually paid or
payable that is made or otherwise effected between the buyer
and seller after the date of importation shall be disregarded
in determining transaction value (emphasis added)."
Assuming that transaction value is the proper method of
appraisement under the facts presented by this protest, we
must determine whether the price reduction between the
"tentative" and "final" FOB prices was a post-importation
rebate or the result of price negotiations prior to
importation.
The documentation submitted by the protestant supports
SOA's contention that FHI and SOA agreed, prior to
exportation, that the prices stated on the commercial
invoices for the 1990 model year Legacy and Loyale models
were tentative. Although SOA paid these prices, both parties
understood that the final prices would be set by
negotiations. For the Loyale models, SOA and FHI agreed to
the final prices on February 8, 1989; for the Legacy models,
the parties set the final prices on February 28, 1989.
As indicated on the schedule of protested entries
submitted with this protest, all of the automobiles that are
the subject of this and the referenced protests were exported
on or after the dates in February, 1989, when the parties set
the final prices. Prior to exportation, the parties
concluded the negotiations and agreed to the final prices but
were unable to change the invoices until two months later
(May 1989). The seller, FHI, subsequently refunded to the
buyer, SOA, differences between the final prices and the
tentative invoice prices used for shipment and Customs entry.
HOLDING:
In accordance with the rationale set forth above, we are
satisfied that the documentary evidence submitted with the
subject protest supports the protestant's position that the
new, lower prices had been agreed upon prior to the
exportation of the subject merchandise. The final prices
actually paid by SOA to FHI were set prior to the time of
exportation and, therefore, those prices represent the price
actually paid or payable for the imported automobiles when
sold for exportation to the U.S.
Accordingly, you are hereby directed to grant the
protest. A copy of this decision should be attached to Form
19, Notice of Action, to be sent to the protestant. Any
pending protests concerning the same parties, identical
merchandise and issues, should be treated in a manner
consistent herewith.
Sincerely,
John Durant, Director
Commercial Rulings Division