RR:IT:VA 547035 LR
Port Director
U.S. Customs Service
Baltimore. Md.
RE: Internal Advice Request; Valuation of Titanium Sponge from Russia; sale for exportation; clearly destined
Dear Director:
This is in response to your memorandum dated December 16, 1997, received in this office on April 1, 1998, requesting internal advice concerning the level of sale to be used in determining the appraised value of Russian Titanium Sponge imported by Interlink Metals and Chemicals, Inc. (importer). The importer’s comments are set forth in a letter dated October 23, 1997 to your office in response to a Notice of Action. Following a meeting at Headquarters with the importer and the importer’s counsel on January 27, 1999, the importer provided additional information by letter dated February 12, 1999. We also received comments from the Chief, Metals & Machinery Branch, National Commodity specialist Division. We regret the delay in responding.
FACTS:
The imported product is titanium sponge (Ti sponge) produced in Russia by Avisma Titanium-Magnesium Works (Avisma) and imported on July 1, 1997 pursuant to a multi-tiered transaction. The transaction involves two middlemen, the importer’s related Swiss company, Interlink Metals and Chemicals SA (Interlink SA), and TMC Trading International (TMC), an unrelated company located in Ireland. You indicate that the importer purchases the Ti sponge from Interlink SA, Interlink SA purchases the Ti sponge from TMC; and, TMC obtains the Ti sponge from Avisma.
The importer made entry based on the transaction price between TMC and Interlink SA. However, your office informed the importer via a CF 29 that you intend to reappraise the merchandise based on the transaction between the importer and Interlink SA. The importer disagrees with your proposed appraisement. It asserts that transaction value is properly based on the transaction between TMC and Interlink SA because this is a sale for exportation to the United States under the principles set forth in the court decision Nissho Iwai American Corp. v. United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F.2d 505 (1992). The importer contends that the imported Ti sponge was clearly destined throughout the transaction to a purchaser in the U.S.
The basic facts are not in dispute. You indicate that the importer contracts to supply Ti sponge to a U.S. purchaser, generally a large amount, to be shipped over a span of several months. The importer contracts with Interlink SA to supply them with the necessary Ti sponge, also shipped over several months. Interlink SA contracts to purchase the Ti sponge from TMC. The final destination of the material is not revealed to TMC. Consequently, no U.S. destination appears on any paper work passing between TMC and Interlink SA. In fact, the documents indicate that the final destination is a warehouse in Loviisa, Finland. TMC obtains the Ti sponge from Avisma. According to the importer, TMC does not stock pile previously purchased material, but makes purchases from Avisma as needed. TMC sells the material to Interlink SA and the material is delivered to a warehouse in Loviisa, Finland. Interlink SA sells the Ti sponge to the importer and begins sending partial shipments of material to the importer in the U.S. The terms of sale are “CIF Baltimore”. The importer arranges for delivery of the Ti sponge to the ultimate U.S. purchaser, RMI Titanium Company (RMI) in this case. You indicate that payment for the Ti sponge is made from each entity in the string of transactions.
The importer’s position is that transaction value should be based on the sale between TMC and Interlink SA since the shipments are generated by the purchase orders originally received by Interlink NY from RMI. The importer claims that its paper chain supports this position even though the documents between Interlink SA and TMC do not indicate the final destination to be the United States.
It is the position of your office that the evidence does not establish that the imported Ti sponge was clearly destined to the United States at the time Interlink SA purchased it from TMC. Specifically, you note that there is no documentation connected with the sale between TMC and Interlink SA indicating that a U.S. destination had been established by the time the transaction had been consummated and that no documentation clearly states that the material is destined for the United States. You also note that the material does not appear to be produced to any specific U.S. standards, nor in accordance with any unique Interlink specifications. Finally, you note that there is no easily followed chain of sales, clearly linked to show the material was purchased by Interlink SA expressly to fulfill a prior existing sale to the U.S. to Interlink NY.
You advise that you are treating this entry as a “test case” and intend to apply our advice to all similar Interlink NY entries.
You have provided copies of the entry documents and other documents submitted by the importer in support of its claims. The entry documentation includes:
1. An undated Pro-Forma invoice between TMC and Interlink SA for 67,389 KGs of Ti sponge, 12-70 mm in size, grade TG-100.
2. Invoice #102/384 between TMC and Interlink SA dated June 10, 1997 for 93,740 Kgs of Ti sponge, grade TG-100 and TG-90 showing the final destination to be “in warehouse Loviisa, Finland”.
3. Invoice #102/370 between TMC and Interlink SA dated June, 1997 for 397,300 Kgs of Ti sponge, grade TG-100 showing the final destination to be “in warehouse Loviisa”.
4. Invoice #SII01306 between Interlink SA and Interlink NY dated June 15, 1997 for 2,649 Kgs of Ti sponge, size 12-25 mm, grade TG-100, shipped from Loviisa, Finland.
5. Invoice #SII01307 between Interlink SA and Interlink NY dated June 15, 1997 for 64,740 Kgs of Ti sponge, size 12-70 mm, grade TG-90/100, shipped from Loviisa, Finland.
6. Packing list dated June 13, 1997 from the Oosterom & Zoon Finland OY warehouse in Loviisa, Finland.
Interlink submitted additional supporting evidence consisting of:
1. A purchase order and sales contract between Interlink NY and the U.S. purchaser RMI dated 12/17/96 and 12/19/96 for 3,000 Metric Tons of Ti sponge, 12x25 mm, 2x12 mm and 12x70 mm in size, grade TG 90/100 to be delivered from December 1996 through December 1997.
2. A purchase contract between Interlink SA and Interlink NY dated 01/16/97 for 6, 050 MT of Ti sponge in sizes of 2-12 mm, 12-25 mm and 12-70 mm, grade TS-90/100/110, to be shipped from January 1997 through December 1997.
3. A purchase contract between TMC and Interlink SA dated 01/20/97 for 5,590 MT of Ti sponge in sizes of 2-12 mm, 12-25 mm and 12-70 mm, grade TG 90/100/110 and TDG 90/100, to be shipped January 1997 through April 1997.
4. Affidavits from Interlink SA and TMC attesting that the two companies are not related and deal with each other on an arms’ length basis.
5. Payments records from Interlink SA to TMC for invoice #’s 102/384 and 102/370, and payment records from Interlink NY to Interlink for invoice #’s SII01307 and SII01306.
ISSUE:
Whether the importer has established that transaction value for the imported Ti sponge should be based on the transaction between TMC and Interlink SA.
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) codified at 19 U.S.C. §1401a. The preferred method of appraisement under the TAA is transaction value, defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus certain enumerated additions.
In Nissho Iwai American Corp. v. United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F.2d 505 (1992), and Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18 (1993), the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed the proper dutiable value of merchandise imported pursuant to a three tiered distribution arrangement involving a foreign manufacturer, middleman and a United States purchaser. In both cases, the middleman was the importer of record. In each case, the court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. Each court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm's length, free from any nonmarket influences, and involving goods clearly destined for the United States.
In accordance with the Nissho Iwai and Synergy decisions and our own precedent, we presume that transaction value is based on the price paid by the importer. See, Headquarters Ruling Letter (HRL) 545144 dated January 19, 1994, HRL 545271 dated March 4, 1994, HRL 545360 dated May 31, 1994, and HRL 545648 (IA 10/94) dated August 31, 1994. In further keeping with the courts' holdings, we note that in those situations where an importer requests appraisement based on the price paid by the middleman to the foreign manufacturer (and the importer is not the middleman), the importer may do so. However, it will be the importer's responsibility to show that such price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must present sufficient evidence that the alleged sale was a bona fide "arm's length sale," and that it was “a sale for export to the United States," within the meaning of 19 U.S.C. §1401a.
For purposes of this decision we assume that the transaction between Interlink SA and TMC is a bona fide sale. Nonetheless, the evidence submitted does not support the position that this transaction was a sale for exportation to the United States. First, there is no dispute that the Ti sponge was shipped to a warehouse in Finland before being shipped to the United States. While this fact does not preclude a finding that the merchandise was clearly destined to the U.S., it is an important factor must be considered along with the other evidence.
Thus, in HRL 546069, August 1, 1996, notwithstanding the fact that the purchasing sequence, the product descriptions and quantities set forth in the commercial documents provided some evidence that the imported cheese was destined for the United States at the time of the first sale, and that the packaging had the name of the U.S. purchaser and that the cheese was labeled in accordance with U.S. requirements, Customs determined that based on the totality of the evidence, the imported cheese was not clearly destined to the United States. In reaching this conclusion, Customs pointed to the fact that the cheese was shipped from the factory to Holland for quality testing before being shipped to the U.S., that the terms of the contract provided that the cheese could be rejected if not of sufficient quality, and that none of the commercial documents pertaining to the first sale referenced the ultimate U.S. destination of the cheese. Cf HRL 545254, November 22, 1994 (goods shipped in bond through Canada were clearly destined to the U.S. where there the transaction documents indicated that the goods were destined to the U.S. and the merchandise bore the logo of the U.S. purchaser).
Although the importer alleges that the transaction between Interlink SA and TMC is in fulfillment of the RMI contract, as in HRL 546069, there is no indication on any of the commercial documents between Interlink SA and TMC indicating that the Ti sponge was for exportation to the United States. None of the purchase orders, invoices, shipping documents, etc. pertaining to this transaction makes any mention that the goods were for a specified U.S. purchaser or references any of the documents pertaining to the sale to the U.S. purchaser. In addition, there is no indication on the merchandise itself that the it was for exportation to the United States. For example, unlike in HRL 546069, there is no indication that the goods were packaged for the U.S. or met any special U.S. labeling requirements. When coupled with the fact that the commercial documents indicate that the Ti sponge was to be shipped to Finland and that it was shipped to Finland, we find that the evidence does not establish that the Ti sponge was clearly destined for exportation to the U.S. at the time of the Interlink SA-TMC sale.
While the complete purchasing sequence, product descriptions and quantities on the submitted documents when viewed together provide some evidence that the imported Ti sponge was intended for a specified U.S. purchaser, as in HRL 546069, this evidence is not enough to overcome the contrary evidence that the merchandise was destined for exportation to another country, in this case, Finland. In fact, there is less evidence of a sale for exportation here than in HRL 546069 due to fact that there is no indication here that the Ti sponge was packaged for the U.S. or met special U.S. labeling requirements. In sum, we find that the evidence submitted does not establish that the Ti sponge was clearly destined for exportation to the U.S. at the time Interlink SA purchased them from TMC.
Based on the above considerations, we find that insufficient evidence has been presented to establish a sale for exportation to the United States between TMC and Interlink SA in order to overcome the presumption that transaction value is based on the price Interlink paid Interlink SA.
HOLDING:
The evidence submitted is insufficient to establish that the Interlink SA-TMC was a sale for exportation to the United States and to rebut the presumption that transaction value is properly based on the price the importer paid.
You are to mail this decision to the internal advice applicant no later than 60 days from the date of this letter. On that date, the Office of Regulation and rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs, ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Thomas L. Lobred
Chief, Value Branch