Application for Further Review of Protest No. 2720-09-100606; appraisement of machine tools; estimated prices.

HQ H092575 July 2, 2010 OT:RR:CTF:VS H092575 GG CATEGORY: Valuation Port Director U.S. Customs and Border Protection 11099 S. La Cienega Blvd. Los Angeles, CA 90045 RE: Application for Further Review of Protest No. 2720-09-100606; appraisement of machine tools; estimated prices. Dear Port Director: This is our decision with respect to the above-referenced protest and Application for Further Review (“AFR”), which was forwarded to us by your port’s Team 745 on January 21, 2010. FACTS: The protestant, Mori Seiki USA Inc. (Mori Seiki USA), is an importer of machine parts purchased from its related parent company, Mori Seiki Co., Ltd., of Nara, Japan (“Mori Seiki Japan). The two companies entered into a pricing agreement after consultation with U.S. and Japanese authorities through the Advanced Pricing Agreement Process. On December 4, 2009, Mori Seiki USA filed a timely protest against the appraisement of 28 shipments of machine parts entered during the period July to December, 2008. The protestant explains that during the company’s fiscal year ending in March 31, 2009, Mori Seiki Japan provided Mori Seiki USA with commercial invoices that listed estimated, instead of actual, prices. Mori Seiki USA declared the estimated prices on the entry documents. Mori Seiki USA indicates that the price that it actually paid to Mori Seiki Japan for each shipment was less by a certain percentage than the value reflected on the commercial invoice. In an attachment to the protest, provided by Ernst & Young, it is explained that the adjustments were made as part of an intercompany settlement (payment) process for fiscal year 2009. In accordance with the agreed upon transfer pricing agreement, Mori Seiki Japan was required to calculate the price of all products purchased by its U.S. subsidiary in accordance with an agreed upon formula, and to issue a credit memorandum to Mori Seiki USA. This finalized pricing applied equally to all products purchased (pro rata based on the provisional price used on each invoice for each product). To apply the adjustment to the price actually paid or payable to each purchase and importation during this period, Mori Seiki USA obtained its customs transaction data for the period, removing certain customs transactions for which the adjustment did not apply, for example, bonded warehouse withdrawals for purchases in prior periods. In support of its claim for a refund, the protestant has attached the following exhibits: Importer Value Correction Spreadsheet – illustrates how the overall price correction is allocated across Mori Seiki USA entries at multiple ports of entry and how the price decrease per entry is calculated. Line Level Detail Spreadsheet – illustrates the entered values and corrected values at the line level for each entry. Entry Level Detail Spreadsheet – illustrating the liquidation values, MPF calculation and corrected values at the entry level. It also lays out the calculated refund amount that Mori Seiki USA requests for each entry. The protestant seeks a refund of the difference between the duties that it paid and the duties that it claims were actually due. To eliminate this problem in the future, Mori Seiki USA has applied for participation in the ACS reconciliation program. ISSUE: Whether transaction value should take into account the post-importation price reduction. 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 under the TAA is transaction value, defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus five enumerated additions. There is no dispute that transaction value is applicable. Section 402(b)(4) of the TAA provides in relevant part: (A) The term "price actually paid or payable" means the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. 19 U.S.C. § 1401a(b)(4). Section 402(b)(4)(B) of the TAA provides that any rebate of, or other decrease in, the price actually paid or payable made or otherwise effected between the buyer and seller after the date of importation of the merchandise will be disregarded in determining transaction value. See also 19 CFR 152.103(a)(4). However, we have ruled that if the decrease in price is pursuant to a formula which was in existence prior to the date of exportation, such decrease will not be disregarded. See Headquarters Ruling Letter ("HRL") 544944, May 26, 1992. In this regard, section 152.103(a)(1), Customs Regulations (19 CFR § 152.103(a)(1)) provides that in determining transaction value, 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, such as the price in effect on the date of export in the London Commodity Market. In the current protest, Mori Seki USA declared a higher, estimated price, and by filing a protest now seeks to have its products appraised on the basis of the lower price that its parent company determined after importation. The protestant has not provided any explanation as to why the adjustments were made, e.g., by application of formula. Accordingly, there is no legal basis for CBP to reappraise the imported merchandise at the lower price. The protest must, therefore, be denied. HOLDING: Pursuant to section 402(b)(4)(B) of the TAA, the decrease in price shall be disregarded in determining the transaction value of the imported goods. You are directed to deny the protest in full. In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), 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 Regulations and Rulings of the Office of International Trade 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