VAL CO:R:C:V 544645 DPS

District Director
Portland, Oregon

RE: Application for Further Review of Protest No. 2904-9-000092; invoice prices vs. contract prices negotiated prior to exportation

Dear Sir:

The subject protest and application for further review concerns the appraisement of automobiles manufactured in Japan by Fuji Heavy Industries Ltd. (FHI) and imported by Subaru of America, Inc. (SOA). In addition to the subject protest filed in Portland, Oregon, counsel has advised that identical protests have been filed with Customs at Baltimore, Boston, Jacksonville and Los Angeles.

FACTS:

The protests seek review of the appraisement of certain imported automobiles at the final prices actually paid by SOA to FHI. SOA purchased and imported the subject automobiles pursuant to a temporary pricing arrangement under which the commercial invoice for each shipment reflected tentative prices which were to be finalized by negotiation. The parties further agreed that if the final prices were less than the tentative prices, FHI would reimburse SOA for the difference. Counsel states that the final prices were set prior to importation and, therefore, pursuant to 19 C.F.R. 152.103(a)(1), the goods should be appraised at the final prices actually paid, rather than the higher invoice prices.

In support of SOA's position, counsel has provided the following information. In 1989, SOA first imported two new 1990 model year Subaru automobiles, the "Loyale" and the "Legacy," manufactured by FHI in Japan. FHI owns slightly less than 50% of all of the outstanding shares of SOA, the balance being publicly held. SOA purchased the automobiles on an FOB basis, including packing and foreign inland freight charges. The commercial invoices required payment within five days, and SOA paid the invoices as they became due. SOA was the importer of record and paid all customs duties.

Prior to shipment, counsel represents that SOA and FHI expressly agreed that the prices stated on the commercial invoices accompanying the initial importations would be tentative, but that SOA would remit payment in accordance with the invoice terms. The parties agreed to establish final prices by negotiation as soon as possible. The parties further agreed that any differences between the tentative and final FOB prices on the subject shipments would be reimbursed by the obligated party (i.e., by FHI if the final pricing was less than the tentative, and by SOA otherwise).

These agreements are evidenced by documentation submitted by counsel which consist of correspondence from FHI explaining the arrangement described above. The memorandum dated January 9, 1989, from FHI General Manager to President of Fuji U.S.A. (FUSA), explains the temporary pricing of the 1990 model year Loyale automobiles, and indicates that Loyale shipments would commence in January and includes a schedule headed: "90 MY Loyale: Tentative FOB Price." A second memorandum, dated February 14, 1989, from FHI Manager, First Sales Secretary, to President of FUSA explains the temporary pricing arrangement for the 1990 Legacy models. This correspondence indicates that shipments would commence in February and includes a schedule entitled "90 MY Legacy Tentative FOB Prices." For both the Loyale and Legacy models, the invoice prices were initially set at the "Tentative FOB Prices" stated on the schedules referred to above.

As stated in the correspondence submitted by counsel, these prices were temporary until the final FOB pricing was settled. Subsequently, the appropriate party would compensate the other for any difference between the temporary and the final prices. SOA entered the subject automobiles at the tentative invoice prices.

Further documentation in the form of an affidavit from the President of SOA, explains the tentative pricing arrangement and states that SOA and FHI agreed to final prices for the Loyale models during meetings in New Jersey on February 8, 1989 and that the parties agreed to the final prices for the Legacy models in Japan on February 28, 1989. For both models the final prices are less than the tentative prices at which the automobiles had been shipped and entered. The commercial invoices were changed to state the lower, final prices in May, 1989. A memorandum dated March 1, 1989 from the FHI General Manager to the President of FUSA confirms that SOA and FHI had agreed to the final prices for the Legacy models and encloses a schedule setting forth those prices. Another memorandum from FHI to SOA sets forth in detail the amount of the differences between the tentative prices and the final FOB prices for both the Legacy and Loyale models. Attached to the correspondence are pricing schedules for each of the various Loyale and Legacy models shipped to the U.S. The schedules set forth the tentative prices originally charged for each model (as reflected on the commercial invoices), the final FOB prices subsequently agreed upon, the difference between the two prices and a complete listing of all of the automobiles shipped to the U.S. under the tentative pricing agreement, arranged by dates of shipment. In total, these documents reflect the following:

a. Legacy - 20,758 cars were shipped to the U.S. at the higher, tentative FOB prices, resulting in an overpayment of $xxxxxxxx by SOA to FHI.

b. Loyale - 7,638 cars were shipped to the U.S. at the higher, tentative FOB prices, resulting in an overpayment of $xxxxxxxx

These figures were confirmed by SOA on May 8, 1989 by correspondence from the SOA Finance Department to FHI. FHI reimbursed SOA in the total amount of this overpayment by wiring the funds to SOA's account on or around May 10, 1989.

ISSUES:

(1) Whether the transaction value of the subject imported automobiles is the tentative (higher) FOB price reflected on the commercial invoice, or the final (lower) FOB price which the protestant claims was the result of price negotiations prior to shipment.

(2) Whether the documentation submitted adequately supports the protestant's contention that the new, lower prices had been agreed upon prior to the exportation date of the subject merchandise.

LAW & ANALYSIS:

For the purpose of this response, we assume that transaction value, the preferred method of appraisement, is applicable. Transaction value is defined in section 402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. 1401a(b); TAA) as the "price actually paid or payable for the merchandise when sold for exportation to the United States," plus amounts for the five enumerated statutory additions in 402(b)(1). The "price actually paid or payable" is more specifically defined in 402(b)(4) as: "The total payment (whether direct or indirect...) made, or to be made, for imported merchandise by the buyer to or for the benefit of, the seller." In order to establish transaction value one must know the identity of the seller and the amount actually paid or payable to him.

Section 402(b)(4)(B) of the TAA provides that "any rebate of, or other decrease in, the price actually paid or payable that is made or otherwise effected between the buyer and seller after the date of importation shall be disregarded in determining transaction value (emphasis added)."

Assuming that transaction value is the proper method of appraisement under the facts presented by this protest, we must determine whether the price reduction between the "tentative" and "final" FOB prices was a post-importation rebate or the result of price negotiations prior to importation.

The documentation submitted by the protestant supports SOA's contention that FHI and SOA agreed, prior to exportation, that the prices stated on the commercial invoices for the 1990 model year Legacy and Loyale models were tentative. Although SOA paid these prices, both parties understood that the final prices would be set by negotiations. For the Loyale models, SOA and FHI agreed to the final prices on February 8, 1989; for the Legacy models, the parties set the final prices on February 28, 1989.

As indicated on the schedule of protested entries submitted with this protest, all of the automobiles that are the subject of this and the referenced protests were exported on or after the dates in February, 1989, when the parties set the final prices. Prior to exportation, the parties concluded the negotiations and agreed to the final prices but were unable to change the invoices until two months later (May 1989). The seller, FHI, subsequently refunded to the buyer, SOA, differences between the final prices and the tentative invoice prices used for shipment and Customs entry.

HOLDING:

In accordance with the rationale set forth above, we are satisfied that the documentary evidence submitted with the subject protest supports the protestant's position that the new, lower prices had been agreed upon prior to the exportation of the subject merchandise. The final prices actually paid by SOA to FHI were set prior to the time of exportation and, therefore, those prices represent the price actually paid or payable for the imported automobiles when sold for exportation to the U.S.

Accordingly, you are hereby directed to grant the protest. A copy of this decision should be attached to Form 19, Notice of Action, to be sent to the protestant. Any pending protests concerning the same parties, identical merchandise and issues, should be treated in a manner consistent herewith.


Sincerely,

John Durant, Director
Commercial Rulings Division