Valuation of consigned Tomatoes imported from Mexico; Agricultural Marketing Prices; Fallback Method; 19 U.S.C. § 1401a(f)

HQ H303695 September 12, 2019 VAL-OT:CTF:VS H303695 RSD CATEGORY: Valuation S. Richard Shostak, Esq. 4164 E Hawks Wing Drive Tucson, Arizona 85178 RE: Valuation of consigned Tomatoes imported from Mexico; Agricultural Marketing Prices; Fallback Method; 19 U.S.C. § 1401a(f) Dear Mr. Shostak: This is in response to your letter submitted by email dated April 25, 2019, requesting a ruling on the proper valuation of tomatoes imported from Mexico and sold on consignment. FACTS: You represent the Nogales Customs Brokers, Fresh Produce Association of Americas and the Texas International Produce Association in matters related to the importation and valuation of consigned tomatoes from Mexico. The Nogales Customs Brokers Association is presently composed of customs brokers and other service providers in and around Nogales, Arizona that represent hundreds of importers and exporters of fresh fruits and vegetables. At present, Nogales (along with several other Southwest Border ports) is one of the major ports of entry for virtually all Mexican produce imported into the U.S. Almost all of the fresh produce presently being entered at Nogales is imported on consignment. In other words, the produce is not sold until after it is imported into the United States, and thus there is no sale for exportation. Your specific request concerns fresh tomatoes imported from Mexico. Presently, imported Mexican produce, such as fresh tomatoes, that is sold on consignment is being appraised based on pricing data compiled by the United States Department of Agriculture’s (USDA) Agriculture Marketing Service (AMS). The Nogales Customs Brokers Association has requested that our office approve the use of the daily and weekly price information and lists, issued by AMS, as the basis for entering and determining the customs value of fresh tomatoes imported at Nogales on consignment. It is noted that until May 7, 2019, all fresh produce from Mexico was imported free of duty and merchandise processing fees, under the North American Free Trade Agreement (NAFTA). However, on February 6, 2019, the United States Department of Commerce notified the Mexican signatories to the 2013 Suspension Agreement on Fresh Tomatoes from Mexico that the Department intends to withdraw from the Agreement, consistent with Section VI.B. Section VI.B of the Agreement states that “[t]he signatories or the Department may withdraw from this Agreement upon ninety days written notice to the other party.” With the written notification, the United States Department of Commerce announced that it intended to withdraw from the Agreement on May 7, 2019, the effect of which was that on May 7, 2019, Anti-Dumping Duties were imposed on fresh tomatoes imported from Mexico. ISSUE: Whether fresh tomatoes imported from Mexico and sold on consignment may be appraised based on prices obtained from the USDA AMS prices. 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. Customs and Border Protection (“CBP”) has maintained the position that the use of transaction value is precluded in instances where goods are shipped on consignment, as these transactions do not constitute bona fide sales. See Headquarters Ruling Letter (“HQ”) 548574, dated March 17, 2005; HQ 546602, dated January 29, 1997; HQ 545755, dated May 18, 1995; HQ 543128, dated June 4, 1984; and HQ 542765, dated April 20, 1982. When imported merchandise cannot be appraised on the basis of transaction value, it is to be appraised in accordance with the remaining methods of valuation, applied in sequential order. The alternative methods of appraisement in order of precedence are: the transaction value of identical merchandise; the transaction value of similar merchandise; deductive value; and computed value. If the value of imported merchandise cannot be determined under these methods, it is to be determined in accordance with the fall back method, as specified by section 402(f) of the TAA. 19 U.S.C. § 1401a(a)(1). 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. 19 U.S.C. § 1401a(c). Whether the merchandise can be appraised on the basis of the transaction value of identical or similar merchandise will depend on whether there are other entries of the same or commercially interchangeable merchandise from the same country proximate in time to the merchandise being entered and in substantially the same quantity as the sales of the merchandise being appraised. However, if no such sale is found, the merchandise shall be appraised based on sales of identical or similar merchandise at either a different commercial level or in different quantities, adjusted to take account of any such difference. In accordance with T.D. 91-15, 25 Cust. Bull. 31 (1991), it must be demonstrated that the transaction value is acceptable under section 402(b) at the time of appraisement of the merchandise under consideration in order to be applied as the transaction value of identical or similar goods under section 402(c). In T.D. 91-15 it was explained that the information necessary for the determination of the transaction value of identical or similar merchandise under section 402(c) could be made on the basis of information provided by the importer or already available to Customs. Since we have not been provided any information concerning any other tomatoes entering the United States at or about the same time that are identical or similar to the tomatoes at issue, transaction value of identical or similar merchandise is not currently applicable. We have been informed that subsequent to May 2019, some importers are contemplating using transaction value to appraise the imported tomatoes. To the extent that a comparison can be made to importations of such tomatoes of the same quality and commercial volume, during the same proximate time, and CBP has determined that the transaction value is acceptable, the importers of consigned tomatoes should use this value. CBP will analyze whether such sales can used as a basis of appraisement under the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)) for the importations of fresh tomatoes in transactions where there are no sales for exportation. However, if this valuation method is not possible, an alternative method of the appraisement must be applied in accordance with 19 U.S.C. § 1401a. The next method of appraisement is deductive value. Under the deductive value method, merchandise is appraised on the basis of the price at which it 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. 19 U.S.C. §1401a(d)(2)(A)(i)-(ii). If the merchandise concerned is sold in the U.S. in its condition as imported, but not sold at or about the date of importation, the price at which the merchandise is sold in the greatest aggregate quantity after the date of importation, but before 90 days after such importation, is utilized. 19 U.S.C. §1401a(d)(2)(A)(ii). The unit price at which merchandise is sold in the greatest aggregate quantity means the unit price at which it is sold to unrelated persons at the first commercial level after importation. 19 U.S.C. §1401a(d)(2)(B). Furthermore, the price determined under 19 U.S.C. §1401a(d) is to be reduced by an amount equal to the following: (i) any commission usually paid or agreed to be paid, or the addition usually made for profit and general expenses, in connection with sales in the United States of imported merchandise that is of the same class or kind, regardless of the country of exportation, as the merchandise concerned; (ii) the actual costs and associated costs of transportation and insurance incurred with respect to international shipments of the merchandise concerned from the country of exportation to the United States; (iii) the usual costs and associated costs of transportation and insurance with respect to shipments of such merchandise from the place of importation to the place of delivery in the United States, if such costs are not included as a general expense under clause (i); (iv) the customs duties and other Federal taxes currently payable on the merchandise concerned by reason of its importation, and any Federal excise tax on, or measured by the value of, such merchandise for which vendors in the United States are ordinarily liable". 19 U.S.C. §1401a(d)(3). Although it might be theoretically possible to use deductive value to appraise the imported Mexican, in many instances importers do not keep track of the merchandise once they transfer it to the next party after importation. This means that in the ordinary course of business, many of the produce importers do not keep accurate records of sales to present to CBP. In addition, some of the produce shipments may be commingled after importation, which makes them impossible to track. To the extent that there is a lack of information, delays in processing entries, and other practical administrative complexities involved with appraising the consigned produce using the deductive value approach, the imported fresh tomatoes should not be appraised using deductive value. The next method of appraisement is the computed value method. Under this 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. See 19 U.S.C. § 1401a(e)(1). Based on what has been presented, there is insufficient information available to appraise the merchandise pursuant to the computed value method. When the value of imported merchandise cannot be determined under the methods set forth in 19 U.S.C. § 1401a(b)-(e), it may be appraised on the basis of a value derived from one of those methods, reasonably adjusted to the extent necessary to arrive at a value. This is known as the “fallback” valuation method. However, certain limitations exist under this method. For example, merchandise may not be appraised on the basis of the price in the domestic market of the country of export, the selling price in the United States of merchandise produced in the U.S., minimum values, or arbitrary or fictitious values. See 19 U.S.C. § 1401a(f) and 19 C.F.R. § 152.108. Under Section 500 of the Tariff Act of 1930, as amended, which constitutes CBP’s general appraisement authority, the appraising officer may: [F]ix the final appraisement of merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, other document to the contrary notwithstanding[.] 19 U.S.C. § 1500(a). In this regard, the Statement of Administrative Action (“SAA”), which forms part of the legislative history of the TAA provides, in pertinent part: Section 500 is the general authority for Customs to appraise merchandise. It is not a separate basis of appraisement and cannot be used as such. Section 500 allows Customs to consider the best evidence available in appraising merchandise. It allows Customs to consider the contract between the buyer and seller, if available, when the information contained in the invoice is either deficient or is known to contain inaccurate figures or calculations…. Section 500 authorizes [sic] the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise. This could be the invoice, the contract between the parties, or even the recordkeeping of either of the parties to the contract. In those transactions where no accurate invoice or other documentation is available, and the importer is unable, or refuses, to provide such information, then reasonable ways and means will be used to determine the appropriate value, using whatever evidence is available, again within the constraints of section 402. Statement of Administrative Acton, H.R. Doc. No. 153, 96 Cong., 1st Sess. Pt 2, reprinted in Department of Treasury, Customs Valuation under the Trade Agreements Act of 1979 (Oct. 1981), at 67. Accordingly, if the value of imported merchandise cannot be determined on the basis of a method derived from sections 402(b)-(e), it is our position that the value of the imported fresh tomatoes may be determined under the fallback method provided for in section 402(f) of the TAA, using all reasonable ways and means, so long as the method is not specifically precluded under section 402(f)(2)(D). The AMS pricing data is based on telephone surveys of merchants involved in the produce industry. The AMS price reports consist of a range of price data for the various imported produce commodities in several different cities in the United States for a specific time period, such as on a daily and weekly basis. The AMS prices are supposed to be based on produce of the same variety that is of the same quality and condition and that are sold at the same volume level. We also understand that AMS does not attempt to review any records such as invoices, bills of sale, or other financial documents from any of the transactions it uses to compile its data. In other words, in accumulating its pricing data, AMS does not have any evidence of actual sales taking place, and furthermore, none of the alleged sales transactions are reported to CBP. Because the AMS pricing data does not provide previously accepted actual sales transactions for CBP to consider in determining whether there are sales of identical or similar merchandise, we find that it cannot be used as the basis of appraisement under section 402(c). Nonetheless, we conclude that the AMS pricing data may be used to value the consigned fresh tomatoes from Mexico under the fallback method. As previously noted, it is our understanding that the prices, reported by the AMS, are set forth in a range from high to low and accurately portray the prices at which the imported fresh tomatoes are sold in the United States. Significantly, the prices of produce, such as fresh tomatoes, are reported on a daily and weekly basis and are regularly reviewed by USDA for accuracy. Therefore, we find that under the fallback method, the AMS pricing data provides the most suitable way for ascertaining the proper customs value of the imported consigned produce. Therefore, it is acceptable to use the AMS pricing data as the basis of appraisement for the imported consigned fresh tomatoes. If some importers want to switch from selling the fresh tomatoes on a consignment basis to arranging sales to U.S. buyers at the time they export their products, CBP may review such sales to determine whether they are valid sales for exportation that can be used as the basis of transaction value. Assuming that such sales of the fresh tomatoes are valid sales for exportation, in accordance 19 U.S.C. § 1401a(b)(1), the price actually paid or payable in those sales will be used as the basis of appraisement of the imported tomatoes using transaction value. In your letter dated May 22, 2019, you have also requested that certain costs and expenses be deducted from the AMS prices. You mention several specific items that you believe should be eligible for deductions from the AMS prices for the tomatoes: 1) commission and compensation paid to the importer’s agents; 2) Customs duties and other Federal taxes (if any) payable on the merchandise concerned by reason of their importation and any Federal excise tax on or measured by the value of such merchandise for which vendors in the U.S. are ordinarily liable; and 3) the usual costs and associated costs of transportation and insurance with respect shipments of tomatoes from the place of importation (such as, Nogales, Arizona) to the place of delivery in the United States. You also request that all the deductions specifically provided for in 19 U.S.C.1401a(d)(3)(A) should also be allowed to be deducted from the value of the tomatoes. It is acknowledged that the existence and amount of the deductible costs will have to be established on an entry-by-entry basis for each shipment of fresh tomatoes from Mexico. We have been advised that AMS has revised its statement regarding what is included in the AMS prices that it reports for produce. Recently, we received a new statement from the AMS concerning what is included in the AMS prices reports. The statement reads as follows: Prices represent open (spot) market sales by first handlers on product of generally good quality and condition unless otherwise stated and may include promotional allowances or other incentives.  No consideration is given to after-sale adjustments unless otherwise stated.  Reported prices generally include, but are not limited to, applicable brokerage fees and commissions, Customs fees and duties, U.S. packaging and U.S. freight costs prior to first sale, paid by the shipper/seller.  Delivered Sales, Shipping Point Basis excludes all charges for freight after sale. (emphasis added).                                        Based on this description, it appears that you are now requesting to value the imported Mexican tomatoes under the fallback method under 19 U.S.C. 1401a(f) by applying a modified form of deductive value in which importers will be permitted to deduct certain specified costs and expenses from the AMS reported prices. Although the revised statement from AMS concerning its reported prices for produce provides some guidance as to what costs are included in the prices of the produce that it reports, we note that these costs are “generally” included in the produce prices. This means that the mentioned costs will not be included in the AMS prices in every instance, and thus for any specific transaction, it is not possible to know the exact costs included in the prices paid. Under the fallback method of 19 U.S.C. 1401a(f), the appraisement of merchandise using a modified deductive value will be derived from the principles of 19 U.S.C. § 1401a(d) (deductive value). Under the deductive value method of appraising goods, imported merchandise is appraised based upon the price in a sale of imported merchandise to unrelated persons at the first commercial level after importation (emphasis added). The price from that sale can be reduced by the costs for certain specified items, if those costs are known and can be documented. Your request is to permit certain deductions from the AMS reported prices for the tomatoes. However, the AMS prices for produce are not determined by actual sales of merchandise as the AMS does not have any evidence of actual sales taking place. As indicated above, the AMS pricing data is based solely on telephone surveys of merchants involved in the produce industry. It does not attempt to review any records, such as invoices, bills of sale, or other financial documents from any of the transactions used to compile its data, and furthermore no sales transactions are reported to CBP for review. For example, while freight may be included, it is unknown how this freight cost is allocated over a specified shipment. Therefore, because the AMS prices are not based on any actual sales of merchandise after importation, in appraising the imported tomatoes, we find that it would be inappropriate to use a modified deductive value based on the AMS price which would allow deductions incurred in selling the imported tomatoes. To the extent that a tomato importer has evidence of a sale to an unrelated party at the first commercial level after importation, and the tomato importer can further document the costs of the various services such as freight, commissions, duties, etc. specified in 19 U.S.C. § 1401a(d)(3), the imported fresh tomatoes should be valued using the deductive value rather than using the AMS reported prices. To summarize, when the fresh tomatoes are imported on consignment, we find that they may be valued using the AMS reported prices, under the fallback method without deductions, but if the importer has actual documentation of a sale after importation at the first commercial level and can also document certain costs specified in 19 U.S.C. §1401a(d)(3) related to that sale, then the tomatoes should be valued using deductive value. HOLDING: Under section 402(f) of the TAA, it is acceptable to use the AMS pricing data as the basis of appraisement for the imported consigned fresh tomatoes. If the AMS prices are used to appraise the imported fresh tomatoes, then no deductions will be permitted from the reported AMS prices. However, if information on an actual sale at the first commercial level after importation is available, then the fresh tomatoes should be appraised using deductive value. A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed with a copy, this ruling should be brought to the attention of the CBP officer handling the transaction. Sincerely, Monika Brenner Chief Valuation and Special Programs Branch