OT:RR:CTF:VS H042055 RSD
Port Director
U.S. Customs and Border Protection
4341 International Parkway Suite 600 Atlanta, GA 30354
RE: Protest No. 170408150068; transaction value; Discount Programs, Price Adjustments for volume purchases; Post Importation Rebates; 19 U.S.C. 402(b)(4)(B)
Dear Port Director:
This is in response to the application for further review of the protest referenced above. FACTS:
The Protestant, Federal-Mogul, manufactures and sells auto parts. Federal-Mogul has worldwide manufacturing facilities, but it also sources products from suppliers within the United States and abroad. The transactions that are the subject of this protest concern importations of hub assemblies that Federal-Mogul purchased from a Korean company, Iljin Global (Iljin).
Federal-Mogul and Iljin entered into a supply agreement on April 1, 2006. On November 9, 2006, the parties agreed to an addendum to that agreement. In Section 8.2, the addendum provides the following:
8.2 Rebate. Supplier will provide annual rebates per the following incremental schedule (all numbers in USD):
Sales less than or equal to $45,00,000- 11% of sales, capped at a maximum rebate of $4,600,000.
Sales greater than $45,000,000 and less than or equal to $50,000,000-7.5% rebate on the incremental sales.
Sales greater than $50,000,000-10% on the sales in excess of $50,000,000.
Payments for 2007 will be made by the end of each quarter (March 31st, June 30th, September 30th and December 31st). If the check is not received by the end of each quarter, Buyer will issue a credit memo for the rebate payment due.
New part number will not be included in the total sales calculation for the following year rebate.
Protestant states that Federal Mogul and Iljin agreed to this rebate discount because Federal-Mogul wanted to promote a more competitive price structure so that it could grow its market share. Federal-Mogul and Iljin concluded these agreements in 2006, prior to the sale or importation of the hub assemblies covered by the transactions at issue. In a chart contained in its submission, Federal-Mogul indicates that in 2007, it purchased $49,731,798.27 of products from Iljin. According, to its purchase records, Federal-Mogul was entitled to a total price adjustment of $4,954,884.87. To satisfy the rebates owed, Iljin paid Federal-Mogul $4,954,884.87, in quarterly payments. Federal-Mogul submitted records from a series of wire transfers to indicate the specific rebate payments made by Iljin to Federal-Mogul for the price discounts. The Protestant has pointed out that there is a discrepancy in the amount that Iljin transferred to Federal-Mogul because Iljin paid an additional amount to Federal-Mogul due to its miscalculations. In another exhibit, Federal-Mogul provided an invoice-by-invoice calculation of the price adjustment owed and paid by Iljin to Federal-Mogul.
ISSUE:
Whether price adjustments which were paid in the form of rebates from the seller to the buyer based on the quantity of merchandise purchased pursuant to a price adjustment agreement between the buyer and the supplier may be considered in determining the price actually paid or payable.
LAW AND ANALYSIS:
Transaction value is the preferred method of appraising merchandise imported into the United States and is defined in Section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 ("TAA"), codified at 19 U.S.C. 1401a. That section provides, in pertinent part, that the transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States," plus five enumerated statutory additions. The term "price actually paid or payable" is more specifically defined in Section 402(b)(4)(A) of the TAA as, "the total payment (whether direct or indirect . . .) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller."
Customs and Border Protection ("CBP") Regulations further provide that the price actually paid or payable, will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula . . ." (emphasis added). See 19 C.F.R. 152.103(a)(1). The term "payable" means that the price has been agreed upon, but the actual payment may not have been made at the time of importation. A discounted price must be agreed to and affected prior to importation for it to constitute the price actually paid or payable. See, Allied International v. United States, 16 Ct. Int'l Trade 545, 795 F.Supp. 449 (1992). The following example illustrating a cash discount is contained in Example 5 in 19 C.F.R. 152.103(a)(1): "A seller offers merchandise at $100, less a 2% discount for cash. A buyer remits $98 cash, taking advantage of the cash discount. The transaction value is $98, the price actually paid or payable."
Section 402(b)(4)(B) of the TAA addresses rebates or decreases in the price actually paid or payable. It states:
Any rebate of, or other decrease in, the price actually paid or payable that is made or otherwise effected between buyer and seller after the date of the importation of the merchandise into the United States shall be disregarded in determining the transaction value under paragraph (1).
In other words, the language of section 402(b)(4)(B) requires that CBP disregard rebates or decreases in the price actually paid or payable that occur subsequent to importation, thereby preventing a recalculation of transaction value.
In HQ 548093, dated April 26, 2002, CBP considered monetary support or allowances that a seller paid back to a related buyer for warranty support services that the buyer performed after the products were imported into the United States. The seller reimbursed the buyer semi-annually for the warranty services, but the rebate was calculated on a monthly basis and documentation of the payments for the rebate was presented. The pricing allowances or reimbursements were based on an estimated average cost for warranty service based on the experience and the records of both companies. The allowances for specific products were listed in the distribution agreement as an ad valorem price allowance. The Distribution Agreement was amended from time to time, to reflect changes covered or changes in the rate of the price allowance. CBP ruled that no deduction from the price actually paid or payable was authorized. Specifically, CBP determined that the payments at issue made after importation were "rebates . . made or otherwise effected between the buyer and seller after the date of importation of the merchandise into the United States" within the meaning of 19 U.S.C. §1401a(b)(4)(B) and that pursuant to this provision such rebates were to be disregarded in determining transaction value. CBP explained
that payments made by the seller to the buyer were clearly rebates, and it was noted that the importer’s submission more than once referred to the payments as rebates. Since the rebates were made after the importation of the merchandise, pursuant to 19 U.S.C. 1401a(b)(4)(B), we ruled that these rebates were disregarded in determining transaction value.
The importer requested reconsideration of our decision in HQ 548093 dated April 26, 2002. In HQ 548184, dated November 5, 2002, we affirmed our determination in HQ 548093. In the request for reconsideration, the importer contended that the payments at issue were not properly characterized as rebates made or effected after the date of importation. The importer acknowledged that the amounts at issue were paid after importation, but pointed to the fact that they were agreed to well in advance of the importation and were specified in an Agreement between the buyer and seller. In essence, the importer claimed that the parties agreed to a formula for determining the price which was established prior to importation. As such, the importer claimed that under these circumstances the timing of the payment was not relevant.
CBP explained that while a post importation adjustment should be taken into account in determining transaction value where there is a formula for determining the price in effect prior to the date of exportation, CBP found that the parties did not use a formula to determine the price of the imported merchandise. The warranty support amounts to be paid by the seller after importation were not made pursuant to a formula. The agreement contained a clause which indicated that the prices for the products were set forth on an exhibit attached to the agreement. The agreement further provided that the prices could be changed as may be mutually agreed to by the parties. There was nothing in the agreement which established a formula for determining the price of the products based on warranty support rebates. Although over the years there had been various price changes, none reflected a deduction to the price based on warranty support payments. As such, CBP disagreed that the parties established a formula for determining the price based on the price paid by the buyer less the warranty support payments. Accordingly, CBP adhered to the previous determination that the monetary support payments were not to be taken into account in determining transaction value.
In the present case, Iljin made the payments to Federal Mogul after the merchandise was imported. The payments were made and calculated pursuant to an agreement that the parties had reached regarding the quantities of merchandise Federal Mogul purchases from Iljin. In ascertaining whether the payments can be considered in determining the transaction value of the imported merchandise, we must analyze whether the payments constitute a post importation rebate. Consequently, we will consider the meaning of the term “rebate”. According to Black’s Law Dictionary 1295 (8th ed. 2004) a rebate is “a
return of a payment, serving as a discount”. The reimbursements in the present case were partial refunds of the payments that Federal-Mogul made to Iljin. The payments for the merchandise were first sent by Federal-Mogul to Iljin. After payments for the merchandise were received by Iljin, it made a partial refund of money back to the buyer based on the amounts purchased. Therefore, the payments from Iljin to Federal-Mogul clearly constitute rebates from the seller back to the buyer. Since they involved partial reimbursements of money, they cannot simply be considered discounts by which the parties agreed to a reduction in the price of the merchandise.
Although Federal Mogul and Iljin agreed to the price adjustments in an addendum to their sales agreement before the entries of merchandise in question, the actual rebates were made or put into effect after the merchandise was imported. Consequently, since the rebates were made after the importation of the merchandise, we find that pursuant to 19 U.S.C. 1401a(b)(4)(B), these rebates are to be disregarded in determining transaction value of the imported merchandise. See Century Importers, Inc. v. United States, 205 F.3d. 1308 at 1311 (Fed Cir. 2000).
HOLDING:
The amounts Iljin reimbursed Federal-Mogul are post-importation rebates, and thus pursuant to 19 U.S.C. § 1401a(b)(4)(B) are disregarded in determining transaction value of the imported merchandise. The protest is denied in full.
In accordance with the Protest/Petition Processing Handbook (CIS HB, December 2007), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon
Director, Commercial and Trade Facilitation Division