AFR of Protest No. 2501-99-100005 ; Transaction Value; Sale for Exportation; Deductive Value; Related Parties

HQ W547480 October 31,2001 VAL:RR:IT:VA W547480 NL CATEGORY: Valuation Port Director U.S. Customs Service Otay Mesa, CA 92173 RE: AFR of Protest No. 2501-99-100005 ; Transaction Value; Sale for Exportation; Deductive Value; Related Parties Dear Sir: This concerns the above-referenced protest, dated 19 February 1999, which your office has approved for further review and forwarded for Headquarters consideration. The importer protests Customs' appraisement of the merchandise using transaction value, contending that the use of transaction value is barred because there is no bona fide sale for exportation. The Protestant maintains that appraisement should be on the basis of deductive value. We regret the delay in responding. FACTS: The Protestant, Mogami America , Inc. (Mogami), was the importer of record. It is a wholly-owned subsidiary of Mogami Denki Corporation (Denki) of Japan. Mogami has a wholly-owned subsidiary in Mexico, Mogami Mexico, that conducts assembly operations on its behalf, including assembly of the merchandise in question, paper and plastic cones used in the manufacture of loudspeakers. The materials accompanying the protest indicate how the Mogami companies arranged their business. Under a licensing agreement , Denki granted the rights to use the products and served as supplier of materials. Mogami operated the business in the United States, including, during the T R A o 1 T 1 o N period in question, dealings with its sole US customer for the speaker cones, Onkyo Manufacturing, Inc. (Onkyo). The production of the speaker cones was done in Tijuana by Mogami Mexico using parts from Denki ordered by and paid for by Mogami. Mogami supplies the parts, as well as raw s E R v r c E materials, machinery and equipment to Mogami Mexico free of charge. Mogami pays Mogami Mexico its accounted costs plus a markup. H O N O R  The commercial invoices for the protested entries list Mogami Mexico as the seller, Mogami as the consignee, and Onkyo as the ultimate recipient. The carrier's certificate indicates Mogami Mexico as the owner, Mogami as the consignee, and Onkyo as the final destination. The entry summary lists Mogami as the importer of record, with no mention of either Mogami Mexico or Onkyo. Finally, Mogami has supplied documentation that Mogami invoiced Onkyo an amount identical to that shown as the invoice value on the entry summary, and that Onkyo tendered this amount to Mogami. That is, Mogami Mexico's invoice to Onkyo was referenced in Mogami's invoice to Onkyo as concerning the same goods and the same expected payment. ISSUE: What is the proper basis for appraisement? LAW & ANALYSIS: The preferred method of appraising merchandise imported into the United States is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA) codified at 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 the enumerated statutory 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". For these entries you took the position that the transact ion value in the sale for exportation was shown in the commercial invoices. Those invoices indicated the price charged to Onkyo when the merchandise was shipped from Mogami Mexico to Onkyo, with Mogami America shown as the consignee on the commercial invoice and importer of record on the entry summary. Counsel for Mogami maintains that there was no sale for exportation to the United States because Mogami at all times retained title to the merchandise , and received the imported goods as a consignee. Such sales as took place, says Mogami, occurred as domestic sales. Therefore transact ion value is not available as a basis of appraisement and, for various reasons, deductive value must be used.  We agree with Counsel for Mogami to the extent that the transaction between Mogami Mexico and Mogami cannot be treated as a sale for exportation supporting transaction value as the basis for appraisement. The evidence indicates that the transaction is a consignment delivery. Moreover, as a transaction between related parties it would be subject to scrutiny pursuant to section 402(b)(2)(8) to determine whether such price as could be ascertained was influenced by the relationship. Finally, the assembly operation arranged between Mogami and Mogami Mexico could potentially have been appraised pursuant to 19 CFR 152.103(a)(3), which provides a basis for calculating transaction value for assembled goods. However, no relevant data was supplied to permit this approach. The transaction reflected in the invoices and deliveries from Mogami Mexico to Onkyo, and also by the invoices from Mogami to Onkyo and the payment from Onkyo to Mogami is a transaction between unrelated parties. Mogami presented no evidence that the unrelated sales of merchandise to Onkyo were not conducted at arm's length. We find that this transaction was a sale for exportation that provided a statutorily viable basis for Appraisement under transaction v-alue. We.do not agree with counsel's characterization of this as a domestic sale. Notwithstanding that the Mogami and Onkyo were US entities, the result of the agreement was a sale contemplating the importation of the merchandise from Mexico into the OS: We find no other sale for exportation present under these facts, and Protestant has not offered sufficient reason to invalidate the Mogami/Onkyo transaction. We understand that your office is not contesting the dutiability of the royalty paid by Mogami to Denki. You also have indicated that adjustments to appraised value are appropriate for certain charges, costs or expenses incurred for transportation, insurance, and related services incident to the international shipment of merchandise from the country of exportation to the place of importation in the United States, upon presentation of proper documentation by the importer. HOLDING: This Protest should be DENIED. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065 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 customs Home Page on the World Wide at www.Customs.gov, means of the Freedom of Information Act, and other methods of public distribution. Sincerely, x./--'• 'lI \_(..- .'(_ 1-·  1.!,'.  / / \,._..::/-  / l /:./(' .. / \  ---- t rginia L·Brown Chief, Value Branch _.,,,.• • _1- , ./ ( _, ,,', (....