VAL-2 RR:CTF:VS 563483 KSG
Port Director
Hidalgo/Pharr Port
U.S. Customs & Border Protection
9901 S. Cage
Suite B
Pharr TX 78577
Re: Internal Advice: consideration of the proper method of appraisement for imported fruit; deductive value; transaction value for identical or similar merchandise
Dear Director:
This is in response to a letter dated March 22, 2006, from Barthco Trade Consultants requesting a binding ruling on behalf of Pro Fruit Marketing, Inc., as to the proper method of appraisement pursuant to 19 U.S.C. 1401a for certain imported fruit from Chile. As the letter indicates that the entries have been flagged for reconciliation, we are treating the request as a Request for Internal Advice.
FACTS:
Pro Fruit Marketing, Inc., acts as an agent for fruit shippers from Chile and arranges the sale of fruit upon its importation into the United States by U.S. buyers. The fruit is shipped on consignment. The sales price of the fruit depends upon multiple factors that include the type, size, grade, quality, color and condition of the fruit. You state that in many instances, fruit from the same shipment may be sold at different prices because of these variables. You also state that due to the type of market conditions (some fruit is sold at the time of import, while other fruit is placed in cold storage for future sales), the unit sales price quickly changes. The fruit from the same shipment will be sold at different times from the time of arrival to up to 30 days after arrival at different prices due to market fluctuations.
To determine the amount of money to remit to the Chilean shipper for a particular shipment, Pro Fruit adds together the total dollar amount from sales made in the U.S. for a shipment and deducts that amount from their commission, expressed in terms of a percentage. Pro Fruit is responsible for all charges related to the importation and shipment of the fruit to the U.S. buyers, so it also deducts all charges related to the international shipment of the fruit as well as all charges incurred in the U.S., which include, but are not limited to, pier terminal charges, fumigation services, pier inspections, cold storage, pier transfer charges, trucking charges, repacking charges, customs brokerage charges, sales promotion activities, and Customs fees. Pro Fruit proposes to use this same methodology to determine the appraised value of the fruit under the fallback method. Pro Fruit would determine the unit values by dividing this amount by the number of cases in the shipment. As explained below, Pro Fruit claims that the other methods of appraisement are not applicable.
Pro Fruit has included in its submission the following: 1) two USDA marketing reports which show the price of various fruits and vegetables from Chile for a given week; 2) a Customs entry summary and CBP form 3461 with a commercial invoice attached; 3) a copy of the Produce Distribution Agreement between Pro Fruit and the grower, Fruticola Viconto, S.A.; 4) proof of an advanced payment between Pro Fruit and the grower for this shipment;
5) copies of the international and domestic charges deducted from the U.S. sales price; and
6) copies of the invoices for the fruit sold in the U.S. by Pro Fruit on behalf of the grower.
ISSUE:
What is the proper method of appraisement for the imported fruit involved in this case?
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth 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. Transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus amounts for five enumerated statutory additions.
19 U.S.C. 1401a(b). In order for imported merchandise to be appraised under the transaction value method, it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States.
In this case, there is no sale for exportation to the United States. Rather, the merchandise is entered into the U.S. pursuant to a consignment agreement. Transaction value is not applicable with respect to merchandise imported on consignment.
When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. 19 U.S.C. 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (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 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. See 19 U.S.C. 1401a(c). While produce and fruit is often sold on consignment, it is also 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 fruit involved in this case. For instance in Four Seasons Produce, Inc. v. United States, 25 CIT 1395 (2001), Mexican asparagus, exported to the U.S. on consignment, was appraised 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, the prices may fluctuate seasonally, weekly or even daily. Thus, frequent price fluctuations did not preclude the appraisement of the vegetable based on the transaction value of identical or similar merchandise. It may be possible to appraise Pro Fruit’s merchandise in a similar manner. If not, the deductive value method would apply.
Under the deductive value method, 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 and in the greatest aggregate quantity either at or about the time of importation, or before the close of the 90th day after the date of importation. See 19 U.S.C. 1401a(d)(2)(A)(i)-(ii). This price is subject to certain enumerated deductions. See 19 U.S.C. 1401a(d)(3).
Pursuant to 19 CFR 152.105(c):
The deductive value of the merchandise being appraised is whichever of the following prices (as adjusted under paragraph (d) of this section) is appropriate depending upon when and in what condition the merchandise concerned is sold in the United States: (1) 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; (2) 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….
The term “merchandise concerned” means the merchandise being appraised, identical merchandise, or similar merchandise. 19 U.S.C. 1401a(d)(1).
The phrase “unit price in greatest aggregate quantity” is described in 19 CFR 152.105(h) as “the unit price established after a sufficient number of units have been sold to an unrelated person. The unit price to be used when the units have been sold in different quantities will be that at which the total volume sold is greater than the total volume sold at any other unit price.”
The Statement of Administrative Action (“SAA”) H.R. Doc. No. 153 (96th Cong., 1st Sess. Pt.2 (1979)), adopted by Congress contains the following language further explaining the determination of “greatest aggregate quantity”:
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 either of the first two prices applies) or after further processing (in cases to which the third price 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. As an example of the determination of the unit price, two sales of the imported merchandise occur. In the first sale, 500 units are sold at a price of $95/unit. In the second sale, 400 units are sold at a price of $90/unit. In this example, the greatest number of units sold at a particular price is 500; therefore the unit price in the greatest aggregate quantity is $95. In order to determine a valid unit price in each case that deductive value is used, a number of units sufficient to be representative of commercial reality must have been sold. Determinations of what constitutes a number of units sufficient to establish the unit price must be made on a case-by-case basis whenever all the units of the merchandise concerned have not been resold.
Pro Fruit argues that because the fruit is sold based upon such variables as condition at sale, quality, color and grade and also upon the constantly changing prices of the fruit market, determining the “greatest aggregate quantity” is not possible under its accounting system. Pro Fruit contends that the determination of the “greatest aggregate quantity” for each type of fruit in each shipment with so many varying prices represents too great an economic burden of time and effort. In addition, the fruit from the same shipment will be sold at different times from the time of arrival to up to 30 days after arrival at different prices due to market fluctuations.
Pro Fruit included in its submission a copy of two USDA marketing reports which show the daily changing market prices for fruit and vegetables from Chile for the week of January 5, 2005, and for the week of March 1, 2005. Pro Fruit argues that market conditions and the nature of the market are a basis for rejecting deductive value. Pro Fruit requests that the value of the imported fruit be determined using the fallback method by totaling the total dollar amount of sales made in the U.S. for a shipment and then making deductions for its commission, charges for international freight, and charges incurred for delivery in the U.S. The unit values would be determined by taking this value and dividing by the number of cases in the shipment.
Pro Fruit’s situation is not unique. In fact, there are various rulings where produce has been valued based on deductive value even though price fluctuations are common in the produce market. See Headquarters Ruling Letter (“HRL”) 544784, dated August 10, 1992, HRL 545477, dated November 22, 1994; HRL 545032, dated December 4, 1993; and HRL 546602, dated January 29, 1997. In HRL 546602, the importer had a similar arrangement with growers as Pro Fruit and stated that they prepared a final accounting for each grower at the end of the season, using an average price per pre-selected crate equivalent as the basis of the declared value for importations during the following season. Then, at the end of the season, the actual price was determined by accounting for all revenues and expenses. The season-end calculations were provided to Customs as the basis of liquidation of the importer’s entries. The importer argued that it could not utilize deductive value because this method did not consider price adjustments, which due to quality problems for approximately 15 percent of the importations, may be made long after the time of sale, even as long as up to a month. Customs concluded that deductive value served as the appropriate method of appraisement. Customs stated that with regard to the fact that Customs based its deductive values on weekly figures which did not account for price adjustments to the instant importations, sometimes taking several months to finalize, 19 U.S.C. 1401a(d)(1) provides that “merchandise concerned” means the merchandise being appraised, identical merchandise or similar merchandise. In other words, all three types of merchandise may be utilized for appraisement but one type does not take priority over the other. Hence, from a practical standpoint, while Customs generally concerns itself with the sale of the goods being valued, it is not precluded, based on the information available at or about the date of importation, from utilizing on-going sales of identical or similar goods for appraisement. Customs is not required to wait until the instant goods actually are sold or the necessary information concerning such sales is made available. Assuming such prices otherwise fit the criteria and definitions set forth in 19 U.S.C. 1401a(d), they may serve as appropriate bases for appraisement. Based on the above, we find that it could be appropriate to use deductive value in this case.
In addition, we note that it is possible that the importer could utilize computed value in this case. Under the computed value method, merchandise is appraised on the basis of the materials and processing costs incurred in the production of imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. The computed value method could be requested by the importer before the deductive value method. See 19 U.S.C. 1401a(a)(2).
The importer in this case has not shown that the merchandise cannot be appraised pursuant to deductive value or some other basis of appraisement such as transaction value of identical or similar merchandise or computed value. Therefore, appraisement under the “fallback” method (19 U.S.C. 1401(a)(f)) cannot be applied.
HOLDING:
Based on the information provided, the importer’s proposed method of appraisement cannot be applied. The imported fruit must be appraised using the first applicable appraisement method.
This decision should be mailed by your office to the party requesting Internal Advice no later than 60 days from the date of this letter. On that date, the office of Regulations and Rulings will make the decision available to CPB
personnel, and to the public on the CPB 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,
Monika R. Brenner
Chief, Valuation & Special Programs Branch