VAL CO:R:C:V 544346 DPS
District Director
Portland, Oregon
RE: Application for Further Review of
Protest No. 2904-8-000120
Dear Sir:
The subject protest and application for further review
concerns the dutiability of foreign inland freight on certain
transactions between the importer, Subaru of America, Inc.
(SOA), and the manufacturer, Fuji Heavy Industries, Inc.
(Fuji).
FACTS:
The protestant's counsel presented the following
information in support of the subject protest.
SOA purchases and imports four models of Subaru
automobiles manufactured by Fuji in Japan. SOA is a publicly
traded corporation in the United States, and Fuji is its
largest shareholder, owning almost 50 percent of all
outstanding shares. Fuji sells the automobiles to SOA on a
CIF U.S. port basis. The invoice prices to SOA include not
only the value of the automobiles, but also charges for
transportation from the factory to the port and storage of
the automobiles prior to exportation to the United States.
SOA is the importer of record and pays all Customs duties.
Under the current production order system, SOA submits a
firm production order to Fuji approximately two months prior
to the month of actual production of the imported vehicles.
A firm production order may not be revised after submission.
In addition, SOA submits a tentative production order for the
following month's production orders for the two succeeding
months (i.e., three months in advance) and forecast
production orders for the two succeeding months (i.e., four
and five months in advance). Revisions to the tentative
production order before its submission as a firm order cannot
vary by model series, but may vary by model within the series
by up to 30 percent. Forecast production orders may still be
revised at the next submission.
On the assembly line, Fuji attaches an instruction sheet
to the hood of each vehicle calling for the installation of
various parts and components, and setting forth other
information pertinent to manufacture. For those vehicles to
be shipped to the U.S., the sheet bears a designation either
"America" or "California," in accordance with the purchase
order from SOA. The designation "America" indicates that the
vehicle complies with the emission regulations of the U.S.
Department of Transportation (DOT) and Environmental
Protection Agency (EPA), while the designation "California"
indicates that the vehicle complies with the more strict
emission regulations of California.
Transportation of the automobiles from the assembly
line-end at Fuji's plants to the port of exportation is
arranged by Saham Butsuryo Company, Limited (SBC) pursuant to
the terms and conditions of its Service Agreement with Fuji.
Fuji owns 100 percent of SBC, and SBC does not provide such
services for any other company.
SBC contracts with independent trucking companies in
Japan to transport the automobiles from the factories to the
port. Fuji is responsible for insurance on the inland
transport and the selection of all routes. Fuji owns the
warehouses at the factories used by SBC to store the vehicles
prior to shipment to the port.
The finished automobiles are transported from the
factory to the port shortly after manufacture. At the line-
end, Fuji issues a computer card for each automobile showing
the model code, chassis number, destination, and date of
acceptance by SBC. The "destination" refers to the motor
pool or warehouse at the port of export to which the trucking
company must transport that particular automobile. Fuji also
designates the route to be followed by the trucker in
transporting the automobiles. Fuji pays estimated inland
freight charges to SBC monthly in advance, and SBC pays the
freight bills as received from the trucking companies. Any
necessary adjustments between Fuji's monthly payments and the
freight charges paid by SBC are made annually. The inland
freight costs included in Fuji's invoices to SOA are
determined by the monthly payments to SBC, but there are no
adjustments for the same between Fuji and SOA.
Once the vehicles have been transported to the port,
they are stored in warehouses and/or motor pools which are
owned and operated by Higashi-Ogishima Butsuryu Center (HBC).
Fuji owns 43 percent of HBC, and HBC works solely for Fuji.
The warehouses and motor pools which HBC owns or leases are
used only for Subaru vehicles.
HBC performs export services in accordance with its
Service Agreement with Fuji. HBC is responsible for storage
at the port, transfer from storage to public wharves, and all
other services incident to export. The costs of HBC's
services, including storage and labor, are paid directly to
HBC by Fuji, and these costs are included in Fuji's invoice
prices to SOA. The automobiles are held in storage at the
port until Fuji directs HBC to ready for export those models
needed to satisfy each order of SOA. Fuji directly arranges
for the international shipment of the vehicles to the United
States.
In light of the facts set forth above, Subaru of America
argues that the automobiles which Fuji manufactures for it
are destined for shipment to the U.S. before they leave the
plant. The vehicles are produced in accordance with the
production orders received by Fuji at least two months in
advance. The instruction sheets attached to the vehicles on
the assembly line identify those vehicles which will be
exported to the U.S., in accordance with the SOA orders.
Further, Fuji controls and, in fact, directs every phase of
the inland transportation of the automobiles, from the line
end at the factories to the port of export.
The invoice price of the merchandise at issue includes
charges and expenses incurred in transporting the automobiles
from the plant to the port of exportation in Japan, storing
the vehicles at the port, and loading them aboard the U.S.-
bound vessel. Counsel for SOA states that the charges for
inland freight and storage can be readily broken out from the
invoice price to SOA for each shipment of automobiles.
Counsel argues that these inland freight charges, which
Customs included in determining the transaction value of the
imported automobiles, and assessed duty thereon, should be
excluded from transaction value, pursuant to section
152.103(a)(5)(ii) of the Customs Regulations, provided that
SOA can identify them separately and establish that they
occurred after the merchandise was sold for export and placed
with a carrier for through shipment to the United States.
Counsel contends that a "through bill of lading" (TBL)
is not available to Fuji in shipping the automobiles from the
factory to Subaru of America. The reason is that Fuji
arranges for the inland transport and storage of its
vehicles which are then stored and shipped by wholly owned
or related service companies (SBC and HBC). SBC accepts and
stores automobiles (in Fuji facilities) as they leave the
assembly line and contracts for their delivery to the port.
Fuji selects the routes and procures the insurance. The
truckers do not issue bills of lading, but ship the goods
pursuant to the directions of Fuji. At the port, HBC stores
the automobiles and assembles them for loading on board the
ocean carrier as directed by Fuji. Counsel states that Fuji
retains control over the inland transport and storage of the
automobiles to the same extent as if the inland shipments
occurred by its own conveyance. In view of the facts set
forth above, where the ocean carrier is not party to the
inland transport and no TBL is issued, SOA argues that
pursuant to the Customs Regulations [19 CFR
152.103(a)(5)(iii)], no through bill is required under these
circumstances and the inland freight costs are deductible if
sufficient other documentation is available to satisfy
Customs that the automobiles commenced through shipment to
the U.S. at the time they left the factory.
ISSUE:
Whether under the facts presented, it is clearly
impossible to ship the subject merchandise on a through bill
of lading so as to make the foreign inland freight charges
nondutiable.
LAW AND ANALYSIS:
As amended by T.D. 84-235, section 152.103(a)(5),
Customs Regulations, reads as follows:
(5) Foreign inland freight and other inland
charges incident to the international shipment of
merchandise.
(i) Ex-factory sales. If the price actually
paid or payable by the buyer to the seller for
the imported merchandise does not include a
charge for foreign inland freight and other
charges for services incident to the
international shipment of merchandise (an ex-
factory price), those charges will not be
added to the price.
(ii) Sales other than ex-factory. 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 invoices or other commercial
documents, that charge will be part of the
transaction value to the extent included in
the price. However, charges for foreign
inland freight and other services incident to
the shipment of the merchandise to the United
States may be considered incident to the
international shipment of that merchandise
within the meaning of section 152.102(f) if
they are identified separately and they occur
after the merchandise has been sold for export
to the United States and placed with a carrier
for through shipment to the United States.
(iii) Evidence of sale for export and
placement for through shipment. A sale for
export and placement for through shipment to
the United States under paragraph (a)(5)(ii)
of this section shall be established by means
of a through bill of lading to be presented to
the district director. 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 district
director showing a sale for export to the
United States and placement for through
shipment to the United States be accepted in
lieu of a through bill of lading...
The circumstances of this protest are similar to the
situation we addressed in Headquarters Ruling Letter (HRL)
544033, dated January 21, 1988. Therein, we stated:
In reviewing your proposal, Customs is of the
opinion that the language set forth in the last
sentence of (iii) above is quite clear; that is,
only where it is impossible to obtain a through
bill of lading would other documentation be
satisfactory. Neither degree of difficulty nor
contingency of diversion has been set forth as a
factor in this matter.
Headquarters Ruling Letter 543989, dated May 2, 1989,
also focused on the dutiability of inland freight. It cited
HRL 544033 and T.D. 84-235, in support of its conclusion
denying the importer's protest of duty assessments on
merchandise of which the invoice price included foreign
inland freight charges. Essentially, the policy adopted by
Customs requires a through bill of lading.
SOA pays an invoice price which includes charges for
foreign inland freight. Based on the information presented,
it appears that SOA and Fuji made a business decision to
establish the two Japanese companies, HBC and SBC, which
provide inland transportation, storage and loading services
to Fuji. This arrangement was a deliberate business decision
on their part, which is distinguishable from the
impossibility aspect of the Customs Regulation which allows
documentation other than a through bill of lading under very
special circumstances. It is Customs position that the
foreign inland freight and storage charges included in SOA's
invoice price are part of the transaction value of the
vehicles pursuant to section 152.103(a)(5)(ii), Customs
Regulations, and cannot be deducted from the transaction
value of the merchandise because a through bill of lading was
not presented to Customs at the time of importation.
HOLDING:
You are directed to deny the protest. A copy of this
decision should be attached to the Customs Form 19, Notice
Action, sent to the protestant.
Sincerely,
John Durant, Director
Commercial Rulings Division