OT:RR:CTF:VS H006585 GOB
Joel R. Junker, Esq.
Joel R. Junker & Associates
1191 Second Avenue
Suite 1800
Seattle, Washington 98101
RE: Valuation under 19 U.S.C. § 1401a; Deductive Value; Fallback Method
Dear Mr. Junker:
This is in response to your ruling request of January 30, 2007, submitted on behalf of Forest City Trading Group, LLC (“FCTG”). Our ruling follows.
FACTS:
You describe the facts as follows:
FCTG is a U.S. limited liability company located in Portland, Oregon. FCTG wholly owns a number of subsidiary companies engaged in the business of acting as wholesalers of forest and other products. . . .
A number of FCTG’s subsidiaries (hereinafter collectively cited as “FCTG’s subsidiaries” or “the companies”) purchase spruce lumber and pine lumber (hereinafter collectively cited as “lumber”) from any of a number of foreign suppliers (hereinafter cited as “Seller”). The lumber sold by Seller to FCTG’s subsidiaries is shipped to the United States and imported in containers. FCTG’s subsidiaries issue Seller a separate purchase order for each container of lumber it purchases from Seller. . . .
FCTG’s subsidiaries purchase the lumber on CPT terms (Incoterms 2000) and import the lumber into the United States at multiple ports where it is stored for the applicable subsidiary’s account at various reload facilities. At each reload facility lumber from one shipment entered by a subsidiary typically is commingled with lumber entered with respect to other shipments entered by the same subsidiary. FCTG’s subsidiary arranges sales of the imported lumber from the reload centers to its customers in the United States. [You advise that the average inventory time in the reload facility is between 12 and 15 days.]
The price paid or payable by FCTG’s subsidiary to Seller is not determined, however, until the merchandise has been imported and sold to the subsidiary’s customers in the United States. The price paid by the subsidiary to Seller is determined by taking the company’s sales price to the U.S. customer and deducting the applicable reload center’s inventory handling fees; cash discount allowed to the customer, if any; freight charges from the reload center to the place of delivery to the customer and included in the company’s selling price; and the company’s profit . . . The company submits weekly payments to the Seller on an order-by-order basis of the commingled inventory stored at the reload center.
The structure of FCTG’s subsidiaries’ transactions with Seller prevents the companies from knowing the transaction value of the merchandise at the time of entry. As indicated above, the price paid or payable is not known until after the merchandise has been imported and sold in the United States.
The manner in which the imported merchandise is stored and sold in the United States also negatively affects each company’s ability to match quantities of imported lumber to quantities of lumber sold from the reload center to the customer. There are two factors that particularly affect each company’s ability in this regard. First, the imported lumber is commingled with other lumber as noted above. Second, quantities of lumber sold by the company to a given customer in the United States do not necessarily correspond to the quantities imported on a particular entry.
For example, an FCTG subsidiary may import 30,000 board feet of lumber on a given entry. Portions of lumber imported on this entry may be sold to various customers at different times along with other lumber that was imported on one or more other entries. These facts prevent the company from tracking individual pieces of lumber for purposes of matching specific imported merchandise to final sales prices.
Under current entry procedures, Seller provides the company an invoice (hereinafter cited as a “shipping invoice”) at the time the goods are exported for shipment to the United States. The shipping invoice price is based on a weekly index price published as an industry market publication entitled Random Lengths. [Footnote omitted.] The shipping invoice price is based on the price published the Friday before the goods are loaded for exportation to the United States. The shipping invoice price is not the price paid or payable on the sale for export. The final price the company pays Seller may either be higher or lower than the entered value, depending on market price activity that occurs between the Friday prior to shipping and the date the company sells the goods to its customer in the United States.
As the shipping invoice is the only information FCTG’s subsidiary has from Seller regarding the value of the lumber at the time of entry, the company uses the shipping invoice to make entry. The entered value reported to CBP is therefore the value provided on the shipping invoice.
ISSUE:
How is the subject merchandise to be appraised under 19 U.S.C. § 1401a?
LAW AND ANALYSIS:
As you know, 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 primary basis of appraisement is transaction value. When imported merchandise cannot be imported on the basis of transaction value, it is to be appraised in accordance with the remaining methods of valuation, applied in sequential order. The alternative methods of appraisement in order of precedence are: the transaction value of identical merchandise; the transaction value of similar merchandise; deductive value; and computed value. If the value of imported merchandise cannot be determined under these methods, it is to be determined in accordance with section 402(f) of the TAA, sometimes known as the “fallback method.” 19 U.S.C. § 1401a(a)(1).
You propose two methodologies by which the lumber may be appraised under 19 U.S.C. § 1401a(f), which provides in pertinent part as follows:
Value if other values cannot be determined or used
(1) If the value of imported merchandise cannot be determined, or otherwise used for the purposes of this chapter, under subsections (b) through (e) of this section, the merchandise shall be appraised for the purposes of this chapter on the basis of a value that is derived from the methods set forth in such subsections, with such methods being reasonably adjusted to the extent necessary to arrive at a value.
Your First Proposed Methodology
Your first proposed methodology involves the use of a shipping invoice which is based on the market price of the lumber that is published the Friday before the lumber is exported for shipment to the United States. You state as follows:
The shipping invoice method represents a reasonable adjustment of the transaction value by providing for the declaration of entered values that are subject to market-based controls on the price of lumber both at the time of importation and the time it is sold in the United States. The imported lumber is a market-based commodity. Consequently, prices applicable to the lumber generally rise and decline based on a number of market factors. The shipping invoice method would account for such pricing fluctuations over a period of time. In some cases, the published price declared upon entry will be higher than the market price at the time the lumber is sold in the United States and the actual purchase price is determined. In other cases, the published price declared upon entry will be lower than the market price in effect when FCTG’s subsidiary sells the lumber. Ultimately, the prices declared using this methodology will consistently correlate to lumber market activity and will average out consistent with lumber market activity.
The proposed method would provide CBP, FCTG and its subsidiaries the ability to verify the accuracy of entered values. Historical market pricing information upon which the entered values would be based is readily available and can be compared to declared values to confirm that such values were reported correctly on entry summaries under the proposed method. The proposed method also provides optimum administrative convenience due to the availability of published market prices at the time of exportation.
The proposed method reasonably protects the revenue in that any differences in overall values reported to CBP versus prices paid to Seller will result in entered values that on average are higher than the average prices an FCTG subsidiary pays Seller for the imported lumber. As noted above, the price paid by each company to Seller is calculated by deducting certain costs and an applicable discount from each company’s sale price to its customer, as well as [a percentage] of the company’s net sale price. It is reasonable to assume that each company’s sale price to its customer will be consistent with market prices in effect at the time the company sells the lumber. The price paid by the company to Seller will therefore generally be . . . less than the published market price at that time. By declaring the published market price in effect at the time of entry, the entered value using this methodology will on average be a higher price for the lumber than the average payments amounts each company pays Seller.
Any differences between the amounts of each company’s payments to Seller and values declared upon entry will not affect the revenue to the Treasury. The imported lumber is entered under duty-free subheadings of the Harmonized Tariff Schedule of the United States. . . .
Your Second Proposed Methodology
With respect to your second proposed methodology, you state in pertinent part as follows:
An alternative reasonable method for determining an adjusted transaction value based on the fallback method is for each FCTG subsidiary to calculate and use for entered value purposes a unit price based on the average price each company pays Seller for lumber during a previous calendar quarter. This methodology would closely approximate prices paid by the subsidiary to Seller by reflecting the average of prices paid for previously imported lumber during a specified period. CBP has approved similar forms of appraisement under the fallback method.
The quarterly average price for each FCTG subsidiary is a reasonable basis for determining adjusted transaction value because it would be calculated based on prices actually paid to Seller for previously imported merchandise. The quarterly average price would be calculated by dividing the total amount remitted by the subsidiary to Seller during a three-month period by the total board footage upon which the subsidiary’s payments during the quarter are based to arrive at an average price per 1,000 board feet of lumber purchased by the company during that quarter. To ensure the quarterly average price is based on complete data relating to sales made during the previous quarter, the company would commence declaring entered values based on the price beginning on the first day of the second month following the quarter during which sales were made upon which the average price is calculated.
As stated above, imported merchandise is appraised in accordance with section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. § 1401a), and the preferred method of appraisement is transaction valuation. Transaction value is the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. The term “price actually paid or payable” is defined 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.” When the subject merchandise is sold for exportation to the United States, the final price paid or payable is not known, as the price paid or payable is not known until after the merchandise has been imported and sold in the United States. Therefore, we find that the subject merchandise cannot be appraised based upon transaction value.
The transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, of merchandise exported to the United States at or about the same time as that being appraised. (19 U.S.C. § 1401a(c)). With respect to this method of appraisement, you state:
Neither FCTG nor its subsidiaries possess information relating to or are otherwise aware of the existence of previously accepted transaction values from sales of similar or identical merchandise made at or about the same time as the merchandise imported. Moreover, because any such transaction value information would likely come from competitors, neither FCTG nor its subsidiaries have adequate documentation or sufficient evidence of any acceptable transaction value of identical or similar merchandise.
We assume there will be no sales of similar or identical merchandise made at or about the same time as the merchandise imported. Thus, it is not possible to appraise the subject merchandise on the basis of the transaction value of identical or similar merchandise.
With respect to the deductive value method, 19 U.S.C. § 1401a(d) provides in pertinent part as follows:
Deductive value
For purposes of this section, the term “merchandise concerned” means the merchandise being appraised, identical merchandise, or similar merchandise.
(2)(A) The deductive value of the merchandise being appraised is whichever of the following prices (as adjusted under paragraph (3)) is appropriate depending upon when and in what condition the merchandise concerned is sold in the United States:
If the merchandise concerned is sold in the condition as imported at or about the date of importation of the merchandise being appraised, the price is the unit price at which the merchandise concerned is sold in the greatest aggregate quantity at or about such date.
If the merchandise concerned is sold in the condition as imported but not sold at or about the date of importation of the merchandise being appraised, the price is the unit price at which the merchandise concerned is sold in the greatest aggregate quantity after the date of importation of the merchandise being appraised but before the close of the 90th day after the date of such importation.
If the merchandise concerned was not sold in the condition as imported and not sold before the close of the 90th day after the date of importation of the merchandise being appraised, the price is the unit price at which the merchandise being appraised, after further processing, is sold in the greatest aggregate quantity before the 180th day after the date of such importation. This clause shall apply to appraisement of merchandise only if the importer so elects and notifies the customs officer concerned of that election within such time as shall be prescribed by the Secretary.
(B) For purposes of subparagraph (A), the unit price at which merchandise is sold in the greatest aggregate quantity is the unit price at which such merchandise is sold to unrelated persons, at the first commercial level after importation (in cases to which subparagraph (A)(i) or (ii) applies) or after further processing (in cases to which subparagraph A(iii) applies) at which such sales take place, in a total volume that is (i) greater than the total volume sold at any other unit price, and (ii) sufficient to establish the unit price.
You state as follows with respect to deductive value:
The deductive value method is not applicable. Lumber imported by an FCTG subsidiary on a particular entry is commingled at the reload center with lumber imported on other entries by the same subsidiary. The commingling of lumber at the reload center prior to the sale of the lumber prevents the applicable subsidiary from having the ability to match the lumber it sells its customers, and thus the records upon which the value of lumber it pays to Seller, to the lumber that is entered. Additionally, the lumber may not in all cases be sold within the 90-day period required by 19 U.S.C. § 1401a(d)(2)(A).
We disagree. For deductive value, “merchandise concerned” means the merchandise being appraised, identical merchandise, or similar merchandise. 19 U.S.C. § 1401a(d)(1). Thus, FCTG need not track the specific imported merchandise in order to employ deductive value. Because the imported lumber is commingled with other lumber, we believe that there is, at a minimum, a great similarity among the various lots of lumber in the reload facilities.
Pursuant to 19 U.S.C. § 1401a(d)(2)(A)(ii), the deductive value of such lumber is the unit price at which the merchandise concerned is sold in the greatest aggregate quantity after the date of importation of the merchandise being appraised but before the close of the 90th day after the date of such importation. We find that this method of deductive value may be used to appraise the subject merchandise. We note that, pursuant to 19 U.S.C. § 1401a(d)(3), certain adjustments should be made.
You state that “the lumber may not in all cases be sold within the 90-day period required by 19 U.S.C. § 1401a(d)(2)(A).” We assume that, in most commercial contexts, there will be sales within 90-day periods. Therefore, we assume that deductive value under 19 U.S.C. 1401a(d)(2)(A)(ii) may be employed with respect to the subject imported merchandise.
If, in a given case, there are no sales within 90 days after importation, the goods may be appraised under 19 U.S.C. § 1401a(f), the “fallback method,” using a modified deductive value. In this regard, section 152.107, Customs and Border Protection Regulations (19 CFR § 152.107(c)) provides as follows:
§ 152.107 Value if other values cannot be determined or used.
. . .
Deductive value. The “90 days” requirement for the sale of merchandise referred to in § 152.105(c) may be administered flexibly.
Therefore, pursuant to 19 U.S.C. 1401a(f), sales beyond 90 days after importation may be employed in the appraisement of the subject merchandise.
HOLDING:
As detailed above, the merchandise should be appraised pursuant to 19 U.S.C. § 1401a(d) under deductive value. If, in a given case, there are no sales within 90 days after importation, the goods may be appraised under 19 U.S.C. § 1401a(f), using a modified deductive value.
A copy of this ruling letter should be attached to the entry documents filed at the time the subject goods are entered. If the documents have been filed without a copy, this ruling letter should be brought to the attention of CBP.
Sincerely,
Monika R. Brenner
Chief
Valuation and Special Programs Branch