Request for Ruling Concerning the Proper Basis of Appraisement for Imported Components used in the Manufacture of Cored Wire Products; Sale for Exportation.

DEPARTMENT OF THE TREASURY U.S. CUSTOMS SERVICE HQ W545508 January 20, 1995 VAL CO:R:C:V W545508 er CATEGORY: Valuation [x] [x] [x] [x] RE: Request for Ruling Concerning the Proper Basis of Appraisement for Imported Components used in the Manufacture of Cored Wire Products; Sale for Exportation. Dear Mr. [x]: This is in response to your letter dated December 23, 1993, in which you request a ruling on behalf of your client, [x], (“A-U.S.”), concerning the proper basis of appraisement for imported components used in the manufacture of cored wire products. Your request for confidential treatment with respect to pricing information and the names of the foreign manufacturers with whom your parent, A­S.A., contracts has been accorded. We regret the delay in responding. FACTS: A-U.S. is a manufacturer and supplier of cored wire products that are used in the treatment of liquid steel. In addition to its domestic production of such products, A-U.S. imports components of cored wire from abroad. A-U.S., the importer of record, will place orders for these imported products with A-S.A., its parent company located in [x]. These purchase orders set forth A-U.S.’s product specifications. Upon receipt of the purchase orders, A-S.A. will purchase the merchandise from an unrelated manufacturer located abroad and instruct the manufacturer to ship the goods directly from the manufacturer’s premises to A-U.S.’s factory or warehouse. In response to our request for additional information the following documents were included with your supplemental submission dated July 28, 1994: (1) purchase order between A-U.S. (the importer) and A-S.A. (the middleman); (2) purchase order between A-S.A. and the foreign manufacturer; (3) commercial invoice from the manufacturer to the middleman; (4) commercial invoice from the middleman to the importer; (5) purchase material specifications prepared by the importer and transmitted to the middleman; (6) and affidavits from the middleman and manufacturer affirming that they are not related parties. ISSUE: Whether, for purposes of determining the transaction value of the subject imported merchandise, a sale for exportation occurred between the middleman and the manufacturer or between the middleman and the importer. LAW AND ANALYSIS: Section 402(b)(l) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”; 19 U.S.C. 1401a(b)(l)) 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.” (19 U.S.C. 1401a(b)(4)(A)). 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. (CIT 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 United States 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 stated that 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. 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 such 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. Also see, HRL 545144 (January 19, 1994). In further keeping with the courts’ holdings, we note that in those situations 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 will be 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 an “arm's length sale,” and that it was “a sale for export to the United States,” within the meaning of 19 U.S.C. 1401a(b). Regarding the instant case, you request that the transaction value be based on the price that the middleman pays to the manufacturer, rather than on the price that the importer pays to the middleman. In that regard, we note that affidavits have been submitted to the effect that A-S.A. (the middleman) and the manufacturer are not “related,” as that term is defined within 19 U.S.C. 1401a(g). Therefore, we will assume that the sales between the middleman and the manufacturers are at “arm’s length” and that the first requirement set forth in Nissho Iwai has been met. Moreover, you have provided sufficient evidence that the merchandise is “clearly destined” for the U.S. The purchase order between the importer and the middleman reveals that the imported product must meet the importer’s Purchase Material Specification (“PMS”). The importer additionally requires that a certified chemical analysis accompany the finished material so that the importer can verify that the material conforms to the required specifications. The purchase order between the middleman and the foreign manufacturer conforms with the importer­to-middleman purchase order. For example, it sets forth the importer’s PMS requirements, references the importer’s purchase order number and states a quantity in metric terms that matches the quantity set forth on the importer’s purchase order. The purchase order also requires the manufacturer to ship the merchandise directly to the importer in the U.S. Commercial invoices also support the claim that the merchandise is “clearly destined” for the U.S. A commercial invoice from the manufacturer to the middleman references the middleman’s purchase order and indicates that the materials were shipped directly from the manufacturer to the importer in the U.S. Attached to the manufacturer’s commercial invoice is the Certificate of Analysis which, as described above, is requested in the purchase order from the importer to the middleman. A commercial invoice from the middleman to the importer corresponds to the manufacturer’s invoice to the middleman and references the importer’s purchase order number as well as the middleman-to-manufacturer purchase order number. In view of the evidence presented, we find that the transactions between the middleman and the foreign manufacturers are sales “for exportation to the United States” within the meaning of 19 U.S.C. 1401a(b)(l) and may therefore form the basis for transaction value of the imported merchandise. HOLDING: Because sufficient evidence was submitted to demonstrate that (1) the sales are “at arm's length,” and (2) at the time the middleman purchased, or contracted to purchase, the imported goods, they were “clearly destined for the United States,” the transaction value of the imported merchandise may be based upon the sale for exportation between the middleman and the manufacturer. Sincerely, John Durant, Director Commercial Rulings Division