AFR of Protest No. 4701-02-101522; treatment; 19 U.S.C. § 1625; 19 C.F.R. § 177.12; deductive value; election to reverse application of deductive and computed value; 19 C.F.R. § 152.101(c)

HQ W548284 March 22, 2004 RR:IT:VA 548284 CRS CATEGORY: Valuation Area Director U.S. Customs and Border Protection JFK International Airport, Building #77 Jamaica, NY 11430 RE: AFR of Protest No. 4701-02-101522; treatment; 19 U.S.C. § 1625; 19 C.F.R. § 177.12; deductive value; election to reverse application of deductive and computed value; 19 C.F.R. § 152.101(c) Dear Ms. Polimeni: This is in reply to the application for further review of the above-referenced protest, dated December 11, 2002, filed on behalf of [***********************] (hereinafter, the “protestant”), concerning the appraisement of certain women’s apparel imported from Italy. We regret the delay in responding. The bracketed portions of this decision constitute confidential information pursuant to section 177.2(b)(7), Customs Regulations, and will be deleted from published versions of the decision. This matter was discussed at a meeting between protestant’s president and chief executive officer, protestant’s counsel, and members of my staff, at the Mint Annex, Customs Headquarters, on March 2, 2004. FACTS: The protest concerns nine entries of women’s wearing apparel filed between November 1998 and March 2001. The entered values were declared on the basis of transaction value pursuant to the sale between [***************************] (hereinafter the “Exporter”) and the protestant. The protestant is a subsidiary of the Exporter. In Headquarters Ruling Letter (HRL) 547982, dated May 20, 2002, it was determined that the relationship between the protestant and the Exporter influenced the price actually paid or payable. The facts of that decision are incorporated herein by reference. In order to give effect to HRL 547982, your office issued a CF 29 Notice of Action dated June 20, 2002, in which you advised the protestant that its merchandise would be appraised using the deductive value method. To this end, you requested: Please submit to this office, in a timely fashion, copies of the purchase orders, invoices and proof of payments evidencing the total amount paid by the ultimate consignees to [************************] for the merchandise entered under the attached list of entries. Also, please submit proof of payment showing the exact cost (the amount paid to the importing carrier) incurred for the international transportation and insurance associated with the exportation of the merchandise to the USA. In addition, please submit an affidavit from an independent auditor attesting to usual profit and general expenses of [**********************]. Lastly, please note, extensions will only be granted after the requested documentation for the first twenty entries. In response, in a letter dated June 24, 2002, counsel for the protestant noted that HRL 547982 did not require the use of deductive value and requested that the protestant’s merchandise be appraised on the basis of computed value. Counsel did not supply the requested deductive value information. In reply, your office issued a CF 29, also dated June 24, 2002, denying the protestant’s request for a computed value appraisement and advising that no further queries concerning the appraisement of the protestant’s entries would be entertained. Counsel for protestant replied by letter on June 28, 2002, contending that it was not possible to appraise the protestant’s merchandise under deductive value because, inter alia, the goods were not always sold before the close of the ninetieth day after importation, and because protestant’s inventory included commingled goods consisting of returns and damaged/second quality goods. Counsel again noted, however, that the protestant was prepared to provide computed value information. Letter of June 28, 2002, at 3. Protestant also contends that the price of merchandise purchased from the Exporter was determined on a cost plus basis, i.e., in a manner similar to that contemplated by the computed value method. On July 11, 2002, the record reflects that your office issued a value advance to the protestant under cover of a CF 29 Notice of Action. You advised: Due to the fact that we have not been provided with the requisite documentation that would enable this office to appraise [**********] merchandise under 19 USC 1401a(d)(1)(D), all merchandise entered by [**********************] will be appraised under 19 USC 1401a(f)(1). On July 17, 2002, counsel requested reconsideration of HRL 547982, asserting, inter alia, a claim of treatment. The request was denied under cover of a letter dated October 24, 2002. In this regard, citing 19 C.F.R. § 177.11(b)(5), we noted that it would not be in the sound administration of the customs laws to reconsider HRL 547982 inasmuch as your office had not yet applied the decision. We also advised that the issues raised by counsel could be raised in a protest post liquidation. Your office has advised that the merchandise covered by the nine protested entries was appraised pursuant to section 402(f) of the TAA using a deductive value approach derived from section 402(d). The entries were liquidated between September and November 2002. The protest was filed on December 11, 2002. Counsel contends that the protestant’s merchandise has been appraised, as entered, under the transaction value method since 1990, that a large number of entries have been so liquidated, that these appraisements constitute treatment, and that CBP is prohibited from changing the treatment accorded the protestant’s entries without following the procedures set forth in 19 U.S.C. § 1625 and 19 C.F.R. § 177.12. Moreover, counsel notes that beginning in 1989 there was a constant series of inquiries, written and oral, concerning the appraisement of the protestant’s entries. ISSUE: The issues presented are: (1) whether the merchandise covered by the protested entries was properly appraised under section 402(f) of the TAA using a deductive value approach derived from section 402(d); and (2) whether the protested entries should be accorded treatment in accordance with the provisions of 19 U.S.C. § 1625 and 19 C.F.R. § 177.12. LAW AND ANALYSIS: Initially, we note that the protest and application for further review was timely filed under the statutory and regulatory provisions for protests (19 U.S.C. § 1514; 19 C.F.R. pt. 174). We also note that the issues raised are protestable (19 U.S.C. § 1514). As you know, 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 basis of appraisement is transaction value. In HRL 547982 it was determined that the relationship between protestant and its related party seller influenced the price actually paid or payable and that, consequently, protestant’s merchandise should be appraised under the next sequentially applicable method of valuation. 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 section 402(f) of the TAA. 19 U.S.C. § 1401a(a)(1). The protested entries were appraised pursuant to section 402(f) of the TAA using a deductive value approach derived from section 402(d). As provided for in section 402(a)(3) of the TAA, counsel requested a written explanation of how the value of protestant’s merchandise was determined. Based on the information received, counsel questioned the manner in which the value was determined, noting that it resulted in a 97 percent increase in duties. Letter dated August 7, 2003, to Import Specialist, JFK Airport. Irrespective of counsel’s objections, we note that a deductive value appraisement, whether made pursuant to section 402(d) of the TAA, or using a derivation under section 402(f), requires the determination of the unit value at which the merchandise concerned was sold in the greatest aggregate quantity. Moreover, section 402 provides that the deduction for profit and general expenses is to be based on the importer’s profit and general expenses, unless these are inconsistent with those reflected in sales of imported merchandise of the same class or kind. Based on the information contained in the record and provided to counsel pursuant to section 402(a)(3) of the TAA, the value assigned to the protestant’s merchandise does not appear to be consistent with either an actual or a derived deductive value. Notwithstanding these concerns, section 402(a) of the TAA provides in pertinent part: If the value referred to in paragraph (1)(C) cannot be determined with respect to the imported merchandise, the merchandise shall be appraised on the basis of the computed provided for under paragraph (1)(E), rather than the deductive value provided for under paragraph (1)(D), if the importer makes a request to that effect to the customs officer concerned within such time as the Secretary shall prescribe. 19 U.S.C. § 1401a(a)(2). In this regard, section 152.101(c), Customs Regulations, provides that the importer may request the application of the computed value method before the deductive value method. The request must be made at the time the entry summary is filed with the port director. Part 152, Customs Regulations, was amended in 1981, following the enactment of the TAA. In the final rule amending part 152, we noted in respect of the importer’s option to reverse the order of application: 1. Section 151.101(c) Importer’s option – Customs specifically solicited comments on this section relating to the importer’s requesting the application of computed value before deductive value at the time the entry summary is filed. Many of the commenters responded to this issue, and all but one favored a time other than that of filing the entry summary (e.g., 20 days after filing the entry summary), to make the importer’s election of the application of computed value before deductive value. Customs agrees that this is a legitimate and important concern. In order to provide the public the full benefit of this election, Customs considered a variety of proposals in addition to those proposed by commenters. Unfortunately, the only certain time which would be known to both Customs and the public other than the date of filing the entry summary is the date of liquidation. The date of liquidation usually is so remote from the importation of the merchandise and the documentation of the entry as to be unacceptable. However, Customs wishes to advise the public that if subsequent events or submissions demonstrate that this time frame creates a burden or establishes a pattern of importers being deprived of this statutory election, Customs would endeavor to make the appropriate modifications. In the interim, Customs will consider and workable suggestions from the public. 46 Fed. Reg. 2597 (1981). Counsel for protestant requested, prior to liquidation, that the protested entries be appraised under computed value. Letter of June 24, 2002. The request was denied under cover of a CF 29 dated June 24, 2002. The first of the protested entries was liquidated under a section 402(f) modified deductive value on September 13, 2002. Although there is no indication that the protestant elected, at the time the entry summary was filed, to reverse the order of application, the issue of deductive value versus computed value did not arise until after HRL 547982 was issued. Consequently, inasmuch as protestant requested the election, some eleven weeks before liquidation of the entries concerned, it is our position, in the particular circumstances of this case, that the protestant’s request was in accordance with the provisions 19 C.F.R. § 152.101(c). The protested entries should be reliquidated on the basis of computed value. Counsel for the protestant has advised that the requisite information for computed value is available. In determining computed value, the amount for profit and general expenses should be based on the producer’s profit and general expenses unless this is inconsistent with that usually reflected in sales of merchandise of the same class or kind. In accordance with section 152.106(f)(2), Customs Regulations, if information other than that supplied by or on behalf of the producer is used to determine computed value, the port director shall inform the importer of the source of the information, the data used and the calculation based upon the specified data. For purposes of the reliquidation, your office should identify an appropriate number of representative styles for the merchandise covered by the entries subject to protest no. 4701-02-101522. The value of the merchandise should be determined in accordance with section 402(e) of the TAA, using information obtained from the protestant in respect of the representative styles. The entries should be reliquidated accordingly. Questions by your office or by the protestant concerning the reliquidation of the protested entries under the computed value method may be referred to the Value Branch, Office of Regulations and Rulings. Protestant also advances a claim of treatment. Proposed interpretive rulings or decisions that would modify or revoke a prior ruling or decision must be published in the Customs Bulletin in order that interested parties may comment. 19 U.S.C. § 1625(c). Section 177.12(c), Customs Regulations (19 CFR § 177.12(c)) provides generally that the issuance of an interpretive ruling that has the effect of modifying or revoking the treatment previously accorded by Customs to substantially identical transactions must follow certain procedures. In this instance, however, we find the claim of treatment to be premature inasmuch as the proper appraised value of the subject transaction has not yet been determined. The protested entries should be re-appraised under computed value. The treatment claim may be revived should protestant choose to protest the reliquidation of the protested entries. 19 U.S.C. § 1504(d). HOLDING: In conformity with the foregoing, the protest should be allowed in part and denied in part. In accordance with section 402(a)(2) of the TAA, the protestant made a valid request for its merchandise to be appraised under a computed value determined in accordance with section 402(e) of the TAA. The protested entries should be appraised accordingly. Protestant’s claim for treatment is premature inasmuch as the appraised value of the merchandise is yet to be determined. The claim of treatment is therefore denied. In accordance with Customs Directive 099 3550-065, dated August 4, 1993, you are to mail this decision and the Customs Form 19 to the Protestant no later than sixty days from the date of this letter. Any reliquidation of the entry or entries in accordance with this decision must be accomplished prior to mailing the decision. This decision should be mailed to the protestant no later than sixty days from the date of this letter. On that date, the Office of Regulations and Rulings will make the decision available to CBP personnel and to the public via the CBP Home Page on the World Wide Web at www.cbp.gov, through the Freedom of Information Act, and by other methods of public distribution. Sincerely, Virginia L. Brown Chief, Value Branch