Application for Further Review; sale for exportation of merchandise pursuant to multi-tiered sale; Nissho Iwai America Corp. v. United States

HQ 547046 August 18, 1999 RR:IT:VA 547046 RC/LR CATEGORY: VALUATION Port Director of Customs Portland, Oregon 97209 RE: Application for Further Review; sale for exportation of merchandise pursuant to multi-tiered sale; Nissho Iwai America Corp. v. United States Dear Director: This is in response to your memorandum dated March 6, 1998, forwarding the Application for Further Review of Protest No. 290498100004, filed by Donohue & Donohue on behalf of Interlink Metals and Chemicals, Inc. (protestant), on January 29, 1998. The protest challenges the manner of appraisement of two shipments of magnesium metal. A meeting was held at headquarters with the protestant and counsel on January 27, 1999. A follow-up submission was made on February 12, 1999. We regret the delay in responding. FACTS: The merchandise at issue is magnesium metal ingots produced in Russia by Avisma Titanium-Magnesium Works (Avisma) and imported by the protestant in May, 1997 from Finland pursuant to two multi-tiered transactions. The entries were liquidated on October 31, 1997. The transactions involve two middleman, the protestant’s related Swiss company, Interlink Metals and Chemicals SA (Interlink SA), and TMC, Ltd. (TMC), an unrelated company located in Ireland. The relationship between Avisma and TMC is unclear. The protestant made entry based on the price Interlink SA paid TMC without deductions for international freight and insurance. Customs appraised the merchandise using transaction value based on the higher price the protestant paid Interlink SA with deductions for international freight and insurance. The magnesium was unladed at the port of Newark, New Jersey and moved in-bond to Portland for delivery to the protestant’s customer, Kaiser Aluminum Corp. (Kaiser) of Spokane, Washington. The protestant states that Interlink SA buys raw materials from Russia for sale in the U.S. as well as Europe. Protestant allegedly purchased the magnesium from Interlink SA who in turn purchased the magnesium from TMC. Interlink SA did not reveal the final destination of the material to TMC. Consequently, no U.S. destination appears on any paper work passing between TMC and Interlink SA. The documents pertaining to the Interlink SA-TMC transactions indicate that the final destination is a warehouse in Loviisa, Finland. Pursuant to the terms of the contract between Interlink SA and TMC, the magnesium was shipped to a warehouse in Loviisa, Finland before it was exported to the United States. The protestant indicates that the warehouse was selected for its proximity to European and U.S. markets. The bills of lading indicate that the magnesium was shipped to the United States in April, 1997. There is no indication of how long the magnesium remained in the Finland prior to shipment to the United States. Customs determined that the transaction between TMC and Interlink SA did not constitute a bona fide sale and appraised the merchandise using the transaction value method based on the price the protestant paid to Interlink SA. The protestant claims instead that transaction value is properly based on the alleged sale between TMC and Interlink SA. The protestant states that its decision to use the first sale price was carefully considered based on its discussions with Customs in Baltimore. Even though the merchandise at issue is warehoused in a country other than the country of origin and some of the same merchandise is sold from the same warehouse to other European countries, it made entry based on the transaction between TMC and Interlink SA because it could adequately track the merchandise destined for the U.S., based on prior orders by the U.S. customer. The protestant claims that the submitted documents clearly how that the imported magnesium was purchased from the mill by the middleman with the expectation of fulfilling a U.S. order. In support of this claim, the protestant submitted the following documents: A purchase order from Kaiser Aluminum Corp. to the protestant dated November 21, 1996 for 4 shipments of 250,000 pounds of Russian magnesium metal to be shipped each month from May - August 1997. The shipping terms are F.O.B. Delivery Point. A sales contract between the protestant and Kaiser confirming the purchase order identified above; no shipping terms are indicated. A fax from the protestant to Interlink SA, placing the order for April-July shipments; shipping terms are CIF Portland, Oregon. A contract between Interlink SA and TMC, dated November 29, 1996, for the purchase of 480 tons (+/- 5%) of magnesium MG-90 for delivery to Interlink SA, between April and July 1997; it mentions the destination Loviisa, Finland. Interlink SA is referred to as “buyer” and TMC as “seller.” The contract states that the contract price is preliminary, that final settlement is to be effected after the sale of the goods to the end customer, estimated at the rate of the sale prices of the buyer, net the buyer’s commission. The contract also states that all sales to the end customer are to be agreed with the seller. The buyer has to present (to the seller) all copies of the sales contracts and documents in connection with the sale of the goods to the end customer. Two e-mail messages between the protestant and Interlink SA, dated November 26 and November 27, 1996, that allegedly confirm the sale to Kaiser and a fax authorizing the purchase by Interlink SA, of the magnesium from TMC. You furnished copies of the entry documents and the Customs Forms 28 and 29 pertaining to this matter. ISSUE: Whether the protestant has established that transaction value for the imported magnesium 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: 19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined as the “price actually paid or payable for merchandise when sold for exportation for the United States,” plus certain enumerated additions. For purposes of determining transaction value in appraising imported merchandise, a sale for exportation to the United States must take place at some unspecified time prior to the exportation of the goods. In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992), the Court reaffirmed the principle of E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that a manufacturer’s price, for establishing transaction value, is valid so long as the transaction between the manufacturer and the middleman falls within the statutory provision for valuation. In reaffirming the McAfee standard the court stated that in a threetiered distribution system: The manufacturer’s price constitutes a viable transaction value when the goods are clearly destined for export to the United States and when the manufacturer and the middleman deal with each other at arm’s length, in the absence of any nonmarket influence that affect the legitimacy of the sale price . . . [T]hat determination can be made on a casebycase basis. Id. at 509. See also, Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18 (1993). As a general matter, in situations of this type Customs presumes that the price paid by the importer is the basis of transaction value. However, in order to rebut this presumption, the importer must, in accordance with the court’s standard in Nissho, provide evidence that establishes that at the time the middleman purchased, or contracted to purchase, the imported merchandise the goods were “clearly destined for export to the United States” and that the manufacturer and middleman dealt with each other at “arm’s length.” In the instant case, the protestant contends that based on the Nissho decision, the transaction value for the imported merchandise should be based on the sale between Interlink SA and TMC. In determining if this claim is valid, the first question to be addressed is whether there was a bona fide sale between Interlink SA and TMC. For Customs purposes, a “sale” generally is defined as a transfer of ownership in property from one party to another for a consideration. J.L. Wood v. United States, 62 CCPA 25, 33; C.A.D. 1139 (1974); VWP of America, Inc., v. United States, CAFC Slip Op. 98-1048 (April 21, 1999). Several factors may indicate whether a bona fide sale exists between a potential seller and buyer. In determining whether property or ownership has been transferred, Customs considers whether the alleged buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, Customs will examine whether the alleged buyer paid for the goods, whether such payments are linked to specific importations of merchandise, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller. See, HRL 545542, dated December 9, 1994; HRL 545705, dated January 27, 1995; HRL 545550, dated September 13, 1995; HRL 545980, dated December 12, 1995; HRL 546128, dated July 26, 1996; and HRL 546225, dated April 14, 1997. According to protestant’s latest submission, TMC sold the product to Interlink SA on an ex-warehouse basis, foreign port, and Interlink SA sold the product to the protestant on a CIF basis (Port of Entry). If these were the terms of sale, it would appear that Interlink SA did hold title for the goods for a period of time. Nonetheless, the contract between Interlink SA and TMC states, in pertinent part, that the price indicated is merely preliminary, that final settlement shall be effected after the sale of the goods to the end customer, estimated at the rate of the sale price of the buyer, net the buyer’s commission. Additionally, the contract states that all sales to the end customer are to be agreed to by the seller and that the buyer is obligated to present to the seller all copies of the sales contract and documents in connection with the sale of the merchandise to the end customer. Based on the terms of the contract, it appears that the relationship between Interlink SA and TMC is not that of the typical buyer-seller, with the parties maintaining an independence in their dealings. Instead, it appears that Interlink SA may be acting as a selling agent for TMC. According to the terms of the contract, it appears that TMC controls the actions of Interlink SA. In this regard, we note that Interlink SA was not free to sell the merchandise at any price it desired. Additionally, Interlink SA could not select its own customers without consulting the seller. Moreover, there was no agreed upon price nor a set formula for determining the price at the time of the alleged sale. We note that the protestant did not submit any proof of payment. Consequently, based on the evidence presented, it does not appear that a bona fide sale exists between Interlink SA and TMC. Even if it could be established that there was a bona fide sale between TMC and Interlink SA, it has not been shown that the goods were clearly destined to the U.S. as required by Nissho. While the contract between Interlink SA and TMC is alleged to be in fulfillment of the Kaiser contract with Interlink Inc., the former contract does not mention Kaiser, the protestant, or even a destination in the United States. Nor are there any references or tracking numbers pertaining to the earlier transactions. The only destination mentioned in the contract is Loviisa, Finland and in fact, the merchandise was warehoused in Finland before it was sent to the U.S. 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. While it is not necessary that TMC know the ultimate destination of the magnesium, the evidence must indicate that at the time of the alleged Interlink SA-TMC sale the magnesium was clearly destined to the United States. 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 protestant alleges that the transaction between Interlink SA and TMC is in fulfillment of the Kaiser contract, as in HRL 546069, there is no indication on any of the commercial documents between Interlink SA and TMC indicating that the magnesium 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 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 magnesium was to be shipped to Finland and that it was shipped to Finland, we find that the evidence does not establish that the magnesium was clearly destined for exportation to the U.S. at the time of the Interlink SA-TMC sale. The protestant argues that the product description, timing, price, and terms of delivery should be enough to establish that the contract between Interlink SA and TMC is in fulfillment of its contract with Kaiser. While the complete purchasing sequence, product descriptions and quantities on the submitted documents when viewed together provide some evidence that the imported magnesium 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 magnesium was packaged for the U.S. or met special U.S. labeling requirements. In addition, Interlink SA also sells Russian magnesium in Europe, another indication that the merchandise was not necessarily destined to the United States. In sum, we find that the evidence submitted does not establish that the magnesium was clearly destined for exportation to the U.S. at the time of the alleged Interlink SA-TMC sale. 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 the protestant paid.  HOLDING: Based upon the evidence presented, the alleged sales between TMC and Interlink SA are not sales for exportation to the United States and cannot be used as the basis for transaction value. The protest should be DENIED. In accordance with Section 3A(11)(b) of Customs Directive 099 3550065, dated August 4, 1993, Subject: Revised Protest Directive, 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 or entries in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision, the Office of Regulations 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