Request for Internal Advice; tomato paste; foreign inland freight; price actually paid or payable

HQ W547714 November 7, 2001 RR:IT:VA W547714 AML CATEGORY: Valuation Port Director U.S. Customs Service 200 N. Mariposa Nogales, AZ 85621 Attn: Team 642 RE: Request for Internal Advice; tomato paste; foreign inland freight; price actually paid or payable Dear Port Director: This is in reply to your request for internal advice concerning the appraisement of tomato paste from Mexico. The issues arise out of a supplemental information letter ("SIL") filed by Sun Pacific Products ("Sun"). Sun objects to your inclusion of foreign inland freight charges in the transaction value of several entries. Sun also claims that the transaction value of the entries included the cost of what it alleges to be U.S. packaging materials. We regret the delay in responding FACTS: In a letter to Customs Nogales, dated January 28, 2000, Sun asserted that Customs erred when it included foreign inland transportation costs and the cost of packaging materials when it appraised multiple entries of tomato paste in 1999 and 2000. Sun alleged that it had difficulty securing a reliable trucking company in Mexico, and as an accommodation, the Mexican producer located a reliable company. The Mexican trucking company desired to be paid in Mexican currency, so Sun and its Mexican supplier agreed that the Mexican supplier would include those amounts in its invoices to Sun. In the January 28, 2000 letter, after describing the inland transportation arrangement detailed above, Sun alleged that it complied with Customs regulations regarding "incidental" costs of such shipments alleged to have occurred after the sale for exportation. Sun next alleged that it "was not able to obtain a through bill of lading because the product purchased required transloading to other trucks prior to crossing the US border." Finally, Sun alleged that "both the buyer and seller recognized transportation had no part in the value of this product otherwise our original purchase confirmation would have been concluded with the term . . . F.O.B. Mid-bridge, Nogales[.]" An invoice provided bears the letterhead "Holatina S.A. de C.V." (the supplier) and details a shipment of 18,333 kgs of tomato paste from the supplier to the protestant; the delivery terms are "mid bridge USA." On July 8, 1999, Sun presented a SIL at the Nogales Service Port wherein the company requested that the commodity specialist team reappraise certain entries, which were presented with a value of the "midbridge price," to reflect the F.O.B. Culiacan price. Sun alleged that it provided documentation that demonstrated that the terms of sale were "F.O.B., Ex-Factory, Culiacan, Mexico, not F.O.B. Nogales, Arizona." The documentation Sun provided included a copy of a letter from Sun to their customs broker wherein they provided specific cost information of the tomato paste on a per pound basis. Your office states that each of the commercial invoices lists a total midbridge price of $0.395/lb. You verified that this was the amount actually paid to the seller. You also state that the cost of transportation from Culiacan to Nogales and the packaging costs were itemized on the invoices. However, you state that Sun has not provided a through bill of lading and thus the inland freight charges are properly included in the price actually paid or payable. You provided several exhibits. Exhibit 1 consists of a letter from Sun to its broker requesting that drums and bins of the product be given a value of cents/net per pound. Attached to the letter is a document listing entries and alleged refund amounts due and owing as well as letters from Sun to the broker and vice versa. The letter from Sun to its broker, dated May 13, 1999 states in pertinent part a "total midbridge, Nogales, Arizona" price for the product and that deductions should have been made for "truck freight and packaging costs." The letter states that Sun is "arranging for separate invoices for truck freight and packaging costs." The letter from the broker to Sun, dated October 5, 1999, provides in pertinent part that "in order to deduct the freight, the importation must be a through shipment to the United States. All your loads are off-loaded in Nogales, Sonora Mexico." The broker further instructed Sun to "not use a per pound value. Use the actual value per item." Exhibit 2 consists of a letter dated July 22, 1999 from an import specialist at your port to Sun's broker requesting, among other things, through bills of lading and information concerning the packaging materials. The letter contains the definition provided for a "through bill of lading" that was provided in field instructions in 1985. Exhibit 3 consists of three Customs Form (CF) 7501s that are provided as representative entries. Also provided as part of the exhibit is invoice number 4702 on which are handwritten the itemized costs of freight and packaging. Notes affixed by your port personnel to the invoice indicate that the itemized freight and packaging on were also noted on subsequent invoices. Also noted is the fact that the invoice provided and "most all of the [subsequent] invoices" refer to the "mid-bridge price," which, according again to notes provided by Customs Nogales, "contradicts the importer's assertion that the [actual] terms of the sale are FOB Culiacan." Exhibit 4 consists of several documents: the first is a letter dated September 22, 1999, from a Customs Nogales import specialist to the importer denying the importer's claims for exclusion of foreign inland freight and packaging charges from the price actually paid or payable. The second is a letter dated October 20, 1999 from the importer to its broker with attachments. The letter explains to the broker the importer's position concerning foreign inland freight and packaging. Of note is a purchase order ("PO") dated March 26, 1999 that is identical to a PO contained in exhibit 3. The PO in exhibit 3 was provided to Customs in August 1999. The PO appended to the October 1999 is different in two respects: the price per net pound of the goods and the terms of sale, which read "F.O.B. Plant, Culiacan, Mexico." ISSUE: Whether the subject inland freight charges and packaging costs should be considered to be part of the price actually paid or payable for the imported merchandise? 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 primary method of appraisement is transaction value, which is defined in section 402(b)(1) of the TAA as the "price actually paid or payable for the merchandise when sold for exportation to the United States," plus certain enumerated additions. The term "price actually paid or payable" is more specifically defined in section 402(b)(4)(A) as the total payment (whether direct or indirect, and exclusive of any charges, costs, or expenses incurred for transportation, insurance, 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. See 19 U.S.C. §1401a(b)(4), see also 19 C.F.R. §152.102(f). The Customs Regulations provide that as a general rule, in those situations where the price actually paid or payable for imported merchandise includes a charge for foreign inland freight, whether or not itemized separately on the invoice or other commercial documents, that charge will be part of the transaction value to the extent included in the price. 19 C.F.R. §152.103(a)(5)(ii). However, charges for foreign inland freight and other services incident to the shipment of the merchandise to the U.S. may be considered incident to the international shipment of that merchandise if they are identified separately and they occur after the merchandise has been sold for export to the U.S. and placed with a carrier for through shipment to the U.S. Id. A sale for export and placement for through shipment to the United States shall be established by means of a through bill of lading presented to the port director. 19 C.F.R. §152.103(a)(5)(iii); See also All Channel Products v. United States, 16 CIT 169, 787 F. Supp. 1457 (1992), aff'd., All Channel Products v. United States, 982 F. 2d.513 (1992). Only in those situations where it clearly would be impossible to ship merchandise on a through bill of lading (e.g., shipments via the seller's own conveyance) will other documentation satisfactory to the port director showing a sale for export to the U.S. be accepted in lieu of a through bill of lading. Customs rulings on inland freight provide that if the buyer's total payment to the seller includes charges for foreign inland freight, then these charges form part of the price actually paid or payable. See Headquarters Ruling Letter (HQ) 545223 dated September 3, 1993. However, they also provide that foreign inland freight is nondutiable where such charges are identified separately, and they occur after the merchandise has been sold for export to the U.S. and placed with a carrier for through shipment to the U.S. See HQ 543744 dated July 30, 1986 and HQ 544881dated March 8. 1993. A through bill of lading must be presented to Customs. Id. In this case, a through bill of lading was not presented to Customs. Although the importer claims that the freight was provided by its supplier as an accommodation, the fact remains that the merchandise was off-loaded in Nogales, Sonora, Mexico. Therefore, the subject inland freight charges may not be considered incident to the international shipment of the merchandise. Consequently, the subject charges are part of the price actually paid or payable of the merchandise. It appeared through the correspondence contained in the exhibits, specifically those between Sun and its broker and in the synopsis provided by your port personnel, that Sun made an argument concerning the costs of packing and/or packaging materials being included in the appraised value. Sun does not appear to pursue that contention. For informational purposes, if of U.S. origin, packaging materials will be entitled to duty-free treatment under subheading 9801.00.10, HTSUS, which provides for the free entry of products of the U.S. that have been exported and returned without having been advanced in value or improved in condition by any process or manufacture or other means while abroad, provided the documentary requirements of section 10.1, Customs Regulations (19 C.F.R. §10.1) are met. However, if the packaging materials are of foreign origin, their cost or value will be included as part of the dutiable value of the imported merchandise pursuant to General Rule of Interpretation 5(b), HTSUS. HOLDING: The subject inland freight charges and the costs of packaging materials are part of the price actually paid or payable of the subject merchandise. Sincerely, Virginia L. Brown, Chief Value Branch