Transaction value; sale for exportation; indirect payment for mold

HQ W545645 April 11, 1995 VAL R:C:V W545645 IOR CATEGORY: Valuation District Director Great Falls, Montana RE: Transaction value; sale for exportation; indirect payment for mold Dear Sir: This is in response to your request dated May 4, 1994 regarding entries made by Software Logistix Corp. (“Logistix”), a U.S. corporation. Logistix was advised of this pending request by Customs Form 29, and that liquidation of the subject entries was being held pending this response. No submission has been received from Logistix. We regret the delay in responding. FACTS: The subject merchandise consists of imported hard shell plastic battery cases entered from September, 1993 through March, 1994. Logistix is the importer of record of the merchandise. Logistix supplies parts and components to computer hardware and software companies. In this case Apple Computer (“Apple”) placed its order with Logistix by either purchase order or contract, for various assemblies. Logistix assembles and delivers the ordered units to Apple. The subject entries concern merchandise which is part of the type of package ordered by Apple. Logistix issued purchase orders for the battery cases to Northstar Systems (“Northstar”), of California. Apple provided information and product specifications directly to Northstar. Northstar contracted with New-Tec of Korea (“New-Tec, KR”) to design and construct a mold for the battery case. Northstar billed Apple for the mold. Northstar placed its order for the battery cases with New-Tec, Int’l. (“New-Tec, US”), a U.S. subsidiary of New-Tec, KR. New-Tec, US ordered the battery cases from New-Tec, KR. The merchandise was shipped from New-Tec, KR to Logistix in Colorado. The invoices upon which entry was made varied among: 1) invoices from Northstar to Logistix (the unit price being the highest); 2) invoices from New-Tec (it is unclear from the invoice whether the seller is KR or US) to Northstar; and 3) invoices from New-Tec, KR to New-Tec, US (the unit price being the lowest). Each entry contains only one of the foregoing invoices. The different invoices all had different unit prices. None of the invoices included any charge for the mold cost. We have confirmed that New-Tec, KR and New-Tec, US are the only related parties involved in this transaction. You take the position that the price between New-Tec, US and Northstar represents transaction value because that is the lower price between unrelated parties, and that the mold cost should be added to this price actually paid or payable. You ask to be advised of the appraised value for the subject merchandise. ISSUE: Under the circumstances presented, which sale is the sale for exportation to the U.S. for purposes of establishing transaction value. LAW AND ANALYSIS: The preferred method of appraisement is transaction value. Transaction value is defined by §402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. §1401a(b)) as "the price actually paid or payable for the merchandise when sold for exportation to the United States..." plus certain additions specified in §402(b)(1)(A) through (E). The "price actually paid or payable" is defined in TAA §402(b)(4)(A) 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. 935, 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 threetiered distribution arrangement involving a foreign manufacturer, a middleman and a U.S. purchaser. In both cases the middleman was the importer of record. In each case the court held that the price paid by the middleman/importer was the proper basis for transaction value. Each court further held that in such three-tiered distribution arrangements, in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm's length, free from any nonmarket influences and involving goods clearly destined for the United States. Likewise, 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 such transaction value is based on the price paid by the importer. In this regard, field instructions dated March 8, 1993 from the Director of Trade Operations, provide that where an importer requests appraisement based on the price paid by the middleman to the foreign manufacturer (and the importer is not the middleman), the importer may do so. However, it is the importer's responsibility to show that such price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must present sufficient evidence that the sale was at "arm's length,” and that the goods sold were “clearly destined for the United States," within the meaning of 19 U.S.C. 1401a(b). In determining whether any particular transaction may be considered a possible basis for transaction value under Nissho Iwai, the first question that needs to be addressed is whether such transaction constitutes a sale. In J.L. Wood v. U.S., 62 CCPA 25, at 33, C.A.D. 1139 (1974), the court defined the term “sale” as the “transfers of property from one party to another for a consideration.” Although the J.L Wood case was decided under the appraisement statute prior to the TAA, Customs has applied this basic concept of what constitutes a sale under the TAA. Only after determining that there is a sale, do we reach the issue of whether it was negotiated at arms length and whether the goods were destined for the U.S. 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 may 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 are functioning as buyer and seller. Headquarters Ruling Letter (“HRL”) 545705 dated January 27, 1995; HRL 545542 dated December 9, 1994. In the present case, we do not have enough information to determine the roles of the respective parties and whether bona fide sales exist between any or all of the various parties. As indicated above, some of the entries are based on the invoice price from New-Tec, KR to New-Tec, US, others on the invoice price from New-Tec, US to Northstar, and others on the invoice price from Northstar to Logistix. None of the entries contain a complete set of documents relating to the subject transactions nor other information which would enable us to determine which of these transactions constitutes a bona fide sale. As indicated above, there is a presumption that transaction value is based on the price the importer pays. Therefore, absent sufficient information to determine that another transaction is a bona fide sale, the merchandise should be appraised based on the price the importer pays. The test articulated in Nissho Iwai applies only to situations involving more than one viable transaction value. In the situation where entry is made based on the sale between Logistix and Northstar, the facts are consistent with the presumption that transaction value is based on the price paid by the importer. Logistix is the importer and has entered the merchandise based on the price it paid to Northstar. Based on the abovenoted presumption, the transaction value of the imported merchandise should be based on the price that Logistix paid to Northstar. Where Logistix, as the importer, has entered the imported merchandise on the basis of the invoice price from New-Tec to Northstar, in accordance with Nissho Iwai and Synergy, it is Logistix’ burden to show that there is a sale between New-Tec and Northstar, that such sale was at “arm’s length,” and that the goods sold were “clearly destined for the United States.” Similarly, Logistix has entered some of the imported merchandise on the basis of the invoice price from New-Tec, KR to New-Tec, U.S. It is Logistix’ burden to show that there is a sale between New-Tec, KR and New-Tec, U.S. that is at “arm’s length,” and that the goods sold were “clearly destined for the United States.” Based on the information provided, Logistix has not met this burden and transaction value should be based on the price the importer pays. With respect to the mold costs paid by Apple, Customs has taken the position that such payments, made by the ultimate purchaser, Apple, through the importer, to the seller, are indirect payments by the buyer to the seller. These payments are part of the price actually paid or payable for the imported merchandise. See, Headquarters Ruling Letter (“HRL”) 543574 dated march 24, 1986; HRL 543882 dated March 13, 1987, aff’d. By HRL 554999 dated January 5, 1989. It is not necessary for the payments to have been paid directly through Logistics. Since the molds were used to produce the imported merchandise, the payment for the molds is part of the price actually paid or payable for the imported merchandise. Unless the price the importer pays to Northstar includes the mold cost, it should be added to the price actually paid or payable. HOLDING: In accordance with the foregoing, we find that the transaction value of the imported merchandise should be based on the price paid by Logistix to Northstar. The mold costs are indirect payments to the seller and as such are part of the price actually paid or payable for the imported merchandise. The Office of Regulations and Rulings will take steps to make this decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels 60 days from the date of this decision. Sincerely, John Durant, Director Commercial Rulings Division