Sale for Export of Merchandise Imported Pursuant to a Three-Tiered Sales Arrangement

HQ W545265 March 4, 1994 VAL CO:R:C:V W545265 pmh CATEGORY: Valuation Mr. John Donohue Donohue and Donohue 232 South Fourth Street Philadelphia, PA 19106 RE: Sale for Export of Merchandise Imported Pursuant to a Three-Tiered Sales Arrangement Dear Mr. Donohue: This is in response to your submission dated March 12, 1993, requesting a ruling, on behalf of your client, Fairway Investments Ltd. (hereinafter referred to as “FI”), concerning the valuation of certain merchandise that is imported pursuant to a three-tiered sales arrangement. We regret the delay in responding. FACTS: According to your March 12, 1993 submission, FI sells articles of Irish distinction exclusively to purchasers in the U.S. The sole method of marketing is FI’s catalogue; the only recipients of the catalogue are U.S. residents. The offering price of all articles is only in U.S. dollars; U.S. dollars is the only currency accepted by FI as payment. All electrical articles are wired to accommodate U.S. current only. The woven articles exhibit sizing and marking information in conformity with the laws of the U.S. FI purchases from approximately 65 separate suppliers. FI informs all suppliers that the articles will be sold to purchasers in the U.S. Your submission includes statements from several of FI’ s largest suppliers (representing 50%, by value, of all foreign sales to FI) indicating that such suppliers knew their merchandise was being sold for exportation to the U.S., at the time they sold to FI. You state that FI is unrelated to any of its 65 suppliers and that all sales are at arm's length. Approximately 69% of all sales to the U.S. are filled from available inventory; approximately 31% of the orders are placed by FI with its suppliers after the U.S. purchaser has placed an order with FI. The goods are sold by FI to the U.S. purchaser CIF, duty paid and delivered to the U.S. purchaser. Entry is made by the U.S. deconsolidator. ISSUE: Whether transaction value for the imported goods should be based on the sale between FI and the U.S. purchaser, or on the sale between FI and its supplier. LAW AND ANALYSIS: The method of appraisement is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a). Section 402(b) (1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States” plus enumerated additions. The “price actually paid or payable'' is defined in section 402(b)(4)(A) of the TAA as "the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise…) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller." In Nissho Iwai American Corp. v. United States, No. 92-1239, slip op. (Fed. Cir. Dec. 28, 1992) and Synergy Sport International, Ltd. v. United States, No. 93-5, slip op. (Ct. Int'l. Trade Jan. 12, 1993), the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed the proper dutiable value of merchandise imported pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman and a U.S. purchaser. In each case the issue was which sale (the sale from the foreign manufacturer to the middleman or the sale from the middleman to the U.S. purchaser) is the sale for exportation for purposes of establishing transaction value. In both cases the middleman was the importer of record. In each case the court held that transaction value for the imported merchandise should be based on the price that the middleman/importer paid to the foreign manufacturer. Each court further held that in such three-tiered distribution arrangements, if the sale from the foreign manufacturer to the middleman is "at arm' s length" and for goods "clearly destined for the United states," then transaction value is based on that sale. We note that in the context of filing an entry, Customs Form 7501, an importer is required to make a value declaration. As indicated by the language of CF 7501 and the language of the valuation statute, there is a presumption that transaction value is based on the price paid by the importer. In accordance with the Nissho Iwai and Synergy decisions and our own precedent, we will continue to presume that an importer's declared transaction value is based on the price the importer paid. In those situations where the importer requests appraisement on the basis of a sale from the foreign manufacturer to the middleman and the importer is not the middleman, the importer must submit sufficient evidence to show that the price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must establish that it was an "arm's length sale,” and that the goods sold were "clearly destined for the U.S.” at the time they were sold or contracted to be sold. In this case, counsel for the importer requests that transaction value be based on the price FI pays to its foreign suppliers rather than on the price that the importer/U.S. purchaser pays to FI. In order to accept that price as the basis of transaction value, the importer must meet the standard set forth in Nissho. In that regard, we note that counsel has declared that FI is not related to any of its suppliers, as that term is defined within 19 U.S.C. 1401a(g). In light of the fact that there is no evidence to the contrary, we will assume that the sales between FI and its various suppliers are at "arm's length" and that, therefore, the first requirement set forth in Nissho has been met. With regard to the second requirement, that the goods be "clearly destined for the U.S." at the time of sale, we find the fact that FI sells its merchandise exclusively to purchasers in the U.S., to be the deciding one in this case. That is, since FI's total inventory is sold to purchasers in the U.S. and only in the U.S., then every item it purchases from its suppliers, whether for inventory or in response to a specific purchase order, is destined for the U.S. at the time of sale. Therefore, while it is persuasive evidence that all electrical appliances are wired for U.S. current only, and that the woven goods are marked and sized in accordance with U.S. law, such evidence only indicates the destiny of those specific goods. While it is not clear from the submission that FI sells merchandise other than electrical and woven, we assume it does. However, because FI sells only to the U.S., then its total inventory is destined for the U.S., and all merchandise purchased for inventory are destined for the U.S. at the time of purchase. Therefore, we find that the second requirement set forth in Nissho has been met and that the prices paid by FI to its suppliers may serve as the bases for transaction value for the subject imported merchandise. We note that our decision in this case is based on the specific facts as noted. If, at any time, the sales between FI and any of its suppliers are no longer at arm's length or if FI expands its market beyond the U.S., our reasoning as set forth above would no longer apply. HOLDING: For the reasons set forth above, we find that transaction value of the subject imported goods may be based on the price the middleman/distributor paid to its suppliers, even though such middleman is not the importer of the goods. Sincerely, John Durant, Director Commercial Rulings Division