OT:RR:CTF:VS H165361 CMR
U.S. Customs and Border Protection
Miami International Airport (Service Port)
6601 NW 25th Street Room 272 Miami, FL 33122
RE: Treatment of Flowers Imported Under Consignment; Valuation
Dear Port Director:
Your office requested the advice of this office concerning the use of a valuation method for certain flowers imported under consignment. You believe that the method is not in accordance with the valuation statute. You ask our views with respect to this issue and also ask about the proper way to proceed in light of the fact that this method has been in use at your port for a considerable period of time. This decision is our response. For the reasons set forth below, any treatment that has been previously allowed based on the use of this method is revoked.
Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. § 1625(c)(1)), as amended by section 623 of Title VI, (Customs Modernization) of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057, 2186 (1993), notice of the proposed revocation was published on August 3, 2011, in the Customs Bulletin, Vol. 45, No. 32. One comment was received and is discussed below.
FACTS:
Until earlier this year, under the Andean Trade Preference Act (ATPA) fresh cut flowers from Colombia, Ecuador and Peru were eligible for duty-free treatment. The ATPA expired on February 12, 2011, and flowers from ATPA beneficiary countries thus became dutiable. In connection with this change, representatives of a flower association discussed with port officials the method of valuation for flowers entered under consignment. Under this method, flowers are valued based on an average of the prices of flowers from the previous four weeks (per flower and grade) of imported flowers sold in the United States, less a percentage for gross margin and international transportation. You indicate this average price is utilized only by participating floral association members.
You are of the view that this average price calculation being used by certain importers is contrary to the valuation statute, and have sought advice from this office regarding the appropriate manner to discontinue the use of this method and to notify the industry of the change. You supplied this office with information regarding the background of this issue, including a memorandum from the floral association to its members regarding the valuation of flowers entered under consignment and the agreement reached with Customs; two email messages from 2006; a November 9, 1999, Information Bulletin indicating that the Port of Miami would no longer be issuing the Monthly Flower Price List; and a Monthly Flower Price List issued by the Port of Miami, dated September 29, 1999, indicating the prices listed were the transaction values of identical or similar merchandise.
ISSUE:
What is the proper method of valuing consignment entries of cut flowers?
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; 19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined as the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus certain statutory additions. 19 U.S.C. § 1401a(b)(1). However, in order to use transaction value as the basis for appraisement, there must be a bona fide sale. If there is no sale, as in the case of merchandise imported under consignment, then appraisement must be based on another method set forth in 19 U.S.C. § 1401a, the valuation statute, taken in sequential order.
The remaining methods of appraisement set forth in 19 U.S.C. § 1401a must be considered, in order of precedence: the transaction value of identical or similar mer-
chandise (19 U.S.C. § 1401a(c)), deductive value (19 U.S.C. § 1401a(d)), computed value (19 U.S.C. § 1401a(e)), and the "fallback" method (19 U.S.C. § 1401a(f)).
The transaction value of identical merchandise 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 the merchandise being appraised. See 19 U.S.C. § 1401a(c). While this decision concerns cut flowers sold on consignment, it is possible that there are sales of identical or similar merchandise at the same commercial level and in substantially the same quantity exported to the U.S. at or about the same time as the consignment entries of cut flowers. As noted in Headquarters Ruling Letter (HQ) W563483, dated December 28, 2006, in Four Seasons Produce, Inc. v. United States, 25 CIT 1395 (2001), Mexican asparagus, exported to the U.S. on consignment, was appraised by Customs based on the transaction value of identical or similar merchandise. The court noted that Customs had considered the issue of the perishable nature and price fluctuations in the produce market in interpreting the statutory language “at or about the time” to arrive at a transaction value of identical or similar merchandise. The court also noted that Customs considered that in the case of perishable products, such as asparagus, prices may fluctuate seasonally, weekly or even daily. Thus, frequent price fluctuations did not preclude the appraisement of the asparagus based on the transaction value of identical or similar merchandise. Consignment entries of cut flowers imported through the Port of Miami should be appraised based upon the transaction value of identical or similar merchandise to the extent possible. See HQ 546999, dated April 12, 1999, for a discussion of appraisement using the transaction value of similar or identical merchandise.
If there are no entries of identical or similar flowers on which to base appraisement of a consignment entry of cut flowers, then the deductive value method is applied. Under the deductive value method, the merchandise is appraised on the basis of the price at which the merchandise concerned is sold in the U.S. in its condition as imported either at or about the time of importation, or before the close of the 90th day after the date of importation. The price is the unit price at which the merchandise concerned is sold in the greatest aggregate quantity. See 19 U.S.C. § 1401a(d)(2)(A)(i) and (ii). This sales price is subject to certain enumerated deductions. See 19 U.S.C. § 1401a(d)(3).
Fresh cut flowers are much like produce in that they are perishable in nature and subject to price fluctuations depending on the time of year and various holidays. HQ W563483 cited to various rulings where produce has been valued based on the deductive value method, including HQ 545032, dated December 4, 1993 and HQ 546602, dated January 29, 1997. See HQ H007667, dated May 25, 2007, wherein CBP found melons from Panama to be properly appraised using deductive value.
As the merchandise concerned in deductive value refers not only to the actual imported merchandise, but also to identical or similar merchandise, cut flowers imported under consignment may be appraised either by the transaction value of identical or similar merchandise or the deductive value method. We expect the importer will be aware of either importations of identical or similar merchandise for which transaction value served as the basis of appraisement or be able to provide a value to the port based upon the deductive value of the actual merchandise or the deductive value of identical or similar merchandise. It is our understanding from your port that some importers import both on consignment and direct sales in which case transaction value of identical or similar merchandise should be available to them. Therefore, we are confident the port will be able to appraise cut flowers imported under consignment using either transaction value or identical or similar merchandise or deductive value. Reconciliation is also an option importers may choose.
It is unlikely that computed value would be selected before deductive value by an importer as it requires information from the producer that the importer is not likely to have. However, if an importer has the necessary information and chooses computed value to be applied ahead of deductive value, that is the importer’s option. We see no reason to reach 19 U.S.C. § 1401a(f), the fallback method, as a value upon which to base appraisement should be ascertainable by one of the previous methods.
However, it appears that the fallback method is the method of appraisement being used for consignment entries by certain cut flower importers through the Port of Miami. 19 U.S.C. § 1401a(f) provides, in relevant part:
(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.
(2) Imported merchandise may not be appraised, for the purposes of this chapter, on the basis of—
(A) the selling price in the United States of merchandise produced in the United States;
(B) a system that provides for the appraisement of imported merchandise at the higher of two alternative values;
(C) the price of merchandise in the domestic market of the country of exportation;
(D) a cost of production, other than a value determined under subsection (e) of this section for merchandise that is identical merchandise or similar merchandise to the merchandise being appraised;
(E) the price of merchandise for export to a country other than the United States;
(F) minimum values for appraisement; or
(G) arbitrary or fictitious values.
* * *
Based on a reading of the statute, the fallback appraisement method being used by certain cut flower importers, i.e., participating members of the floral association, does not meet the requirements of paragraph § 1401a(f)(1) cited above. First, the value for appraisement purposes of cut flowers imported under consignment should be ascertainable either through the use of the transaction value of identical merchandise or similar merchandise, or by the use of the deductive value method so there should be no reason to reach the fallback method. Secondly, the method being used is not a reasonable adjustment to an existing method to arrive at a value. The method uses averaging to arrive at a value when other methods set forth in the statute provide reasonable means by which an appraisement value may be determined. In addition, 19 U.S.C. § 1401a(f)(2)(B), read in conjunction with 19 U.S.C. § 1401a(c)(2), shows a clear desire on the part of the drafters of the statute that the lowest value be used when more than one alternative value exists for appraisement purposes. Averaging of values clearly conflicts with this principle of the statute.
One comment was received in response to the notice of proposed revocation of treatment. The commenter argues that “[u]nless and until MIA [Miami International Airport] CBP confirms, it can arrive at a viable value for consigned flowers based on identical or similar merchandise under transaction value pursuant to 19 U.S.C. § 1401a(c) or deductive value pursuant to 19 U.S.C. § 1401a(d), CBP should withdraw its revocation of the treatment afforded to consigned flowers for over the last eleven (11) years.”
The commenter misunderstands the role of the port and CBP in the appraisal of flowers entered under consignment. As stated in the notice of proposed action and in this notice, the importer of record is responsible for using reasonable care to enter, classify and value imported merchandise, and provide any other information necessary to enable CBP to properly assess duties, collect accurate statistics and determine whether any other applicable legal requirement is met. It is the importer of record’s responsibility to provide to the port the values for entries of flowers entered under consignment. See 19 U.S.C. § 1484(a)(1).
In Headquarters Ruling Letter (HQ) 227311, dated September 10, 1999, regarding the exercise of reasonable care by importers in providing initial classification and appraisement information to Customs, a portion of House Report 103-361, Part 1 (November 15, 1993) was cited. The relevant text, which appears at page 136 of the House Report, is as follows:
The requirement that importers use reasonable care in making an entry establishes a “shared responsibility” between the Customs and the trade community, and allows Customs to rely on the accuracy of the information submitted by importers and, in turn, to streamline entry procedures. Under this new provision, the importer will have responsibility to use reasonable care when providing the initial classification and appraisement. In the view of the Committee, it is essential that this “shared responsibility” assure that, at a minimum, “reasonable care” is used in discharging those activities for which the
importer has responsibility. These include, but are not limited to: furnishing of information sufficient to allow Customs to fix the final classification and appraisal of merchandise; taking measures that will lead to and assure the preparation of accurate documentation and providing sufficient pricing and financial information to permit proper valuation of merchandise. Section 621 above elaborates on the criteria used in evaluating whether a ‘reasonable care’ standard is achieved.
In providing the value for flowers entered under consignment, the importer may have knowledge of sales of identical or similar merchandise as defined in 19 U.S.C. § 1401a(h) allowing the use of 19 U.S.C. § 1401a(c). Additionally, the importer, and not the port, would have the information necessary to use the deductive value method under 19 U.S.C. § 1401a(d) to determine the proper value to declare for duty purposes. The port, i.e., Custom and Border Protection, fixes the final appraisement of merchandise under 19 U.S.C. § 1500, but the importer is responsible for providing the initial value amount. The commenter appears to believe it is for the port to provide valuation information to the importer. This is simply not the case.
The argument presented by the commenter that the revocation of the previous treatment will restrict the port’s ability to appraise cut flowers entered under consignment is simply not true. The port sought advice from this office due to concerns over the current treatment regarding valuation of this merchandise and we agreed with the port.
Furthermore, with regard to a method of valuation of cut flowers entered under consignment employed by the agency in 1993 and on which it is argued the current treatment method is based, a written statement of the Floral Trade Council, dated July 8, 1993, submitted to the Subcommittee on Oversight, Committee on Ways and Means, “Hearing to Review the U.S. Customs Services’s Ability to Determine Accurately the Value of Imported Goods Entering the United States,” argued that reliance on sales prices from preceding months led to inaccurate assigned values. Specifically, the statement said:
In this regard, Customs’ assigned values are unable to capture the interrelationship of import volumes and value. For example, in months with holidays, such as February (Valentine’s Day) and May (Mother’s Day), prices will be higher than average. But, because Customs uses the value from a previous month to estimate the entered value, the entered value during February and May will undervalue the flowers in those months. Conversely, in March and June, when imports fall off substantially, even though the estimated entered value is relatively high, it will not generate the same revenue lost during high volume (high value) months.
See “U.S. Customs Services’s Ability to Determine Accurately the Value of Imported Goods Entering the United States,” Hearing Before the Subcommittee on Oversight of the Committee on Ways and Means, House of Representatives, 103rd Cong., 1st Sess., 103-20 (June 17, 1993), at 121.
We are not persuaded by the arguments submitted by the commenter seeking withdrawal of the notice of revocation of treatment regarding the valuation of fresh cut flowers entered under consignment discussed herein. Because we find that the valuation methodology used by participating members of the floral association for entries of cut flowers imported on consignment is not in accord with the valuation statute, this decision serves to revoke any treatment that may have been allowed.
HOLDING:
The appraisement of cut flowers entered under consignment using an average price calculated by the floral association is not the proper method under 19 U.S.C. § 1401a. The treatment allowing the use of such prices for appraisement purposes is hereby revoked.
Flowers entered under consignment should be appraised based upon the transaction value of identical merchandise or similar merchandise (19 U.S.C. § 1401a(c)), if possible, deductive value (19 U.S.C. § 1401a(d)) if a value cannot be ascertained under 19 U.S.C. § 1401a(c), and then if unable to ascertain a value upon which to base appraisement, by computed value (19 U.S.C. § 1401a(e)) and “fallback” value (19 U.S.C. § 1401a(f)), in that order. It is the responsibility of the importer to value his merchandise and provide the port with all the necessary information to fix the final appraisement.
In accordance with 19 U.S.C. § 1625(c), this ruling will become effective 60 days after publication in the Customs Bulletin.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division