VAL-CO:R:C:V 544666 GG
District Director
Seattle District
U.S. Customs Service
1000 Second Avenue, Suite 2200
Seattle, Washington 98104-1049
RE: IA 81/90; appraisement of alumina from Australia
Dear Sir:
This is in response to the internal advice request referenced
above, which we received on March 12, 1991. We regret the delay
in responding.
Three companies - Company A, Company P, and Company X/Y -
import alumina from Australia. Alumina is a high volume, high
value, duty free commodity. Entries of Australian alumina made
prior to October 1, 1990 had revenue significance because the
Merchandise Processing Fee and Harbor Maintenance Fee were
assessed based on the appraised value; importations after that
date are assessed a maximum Merchandise Processing Fee of $400 per
entry, but the Harbor Maintenance Fee is still determined in the
same manner.
You request advice concerning appraisement of the
merchandise.
The details of each set of transactions differ depending on
which company is the importer. Therefore, as in your memorandum,
they will be presented separately.
1. COMPANY A
Company A, a Delaware corporation, buys and imports alumina
from a related party, Company B. Company B is also incorporated
in Delaware. Company B sources the alumina from Company C. The
ultimate consignee is Company A.
The transactions between Company B and Company A are governed
by a contract. The price terms are set down in Articles 2, 4, 5
and 10 of the contract. Article 2, which gives shipment and
delivery terms, states that alumina produced by Company C shall be
delivered by Company B to Company A f.o.b. vessel, Gladstone,
Australia. Title to the alumina and risk of loss pass at the
f.o.b. point.
Under Article 4, the price per ton of alumina delivered to
Company A f.o.b. vessel, shall be the fair market value of the
alumina as determined each year by agreement of the parties based
on long term supply arrangements between unrelated parties.
During the month of December, Company A and Company B shall agree
on a provisional price for invoicing purposes during the
forthcoming calendar year pending agreement on a final price for
that year. Prior to June 30 of each year the parties shall reach
agreement on the final alumina price for that year which final
price shall apply retroactively to January 1.
Article 5 provides that Company B will, within 15 days after
the end of each calendar month, invoice Company A for the tons of
alumina delivered to Company A during the preceding month
multiplied by the price determined in accordance with Article 4.
Amounts due from or payable to Company A following final agreement
on price for each calendar year, shall be invoiced and paid by
Company A or credited to Company A's account.
Finally, Article 10 of the agreement states that the final
alumina price for each year, as determined in accordance with
Article 4, shall be subject to the approval of the Australian
government.
In your internal advice request, you state that in response
to a Request for Information (CF 28) from Customs, you were
informed that the price between Company B and Company A for
alumina represents a provisional price agreement between Company B
and the Australian Department of Primary Industries and Energy.
The 1990 provisional price was $280/MT; that was also the final
1989 price. A Company B representative also indicated that the
provisional price represents the cost of production plus a fair
profit as gauged against sales between unrelated firms. Such
related sales reportedly comprise no more than 15-20% of the total
trade in Australian alumina; the rest are related sales. Company A
has not provided any evidence or proof of its payment to Company
B. The Company B representative did not know how much money is
actually sent to Company C in payment for the alumina, but
theorized that the only funds actually transferred to Company C
are those required to keep the plant operating. There is no
deductive value because Company A does not resell the alumina but
uses it in its own smelters.
Using the figure of $280/MT to represent computed value, you
indicate that you appraised most 1989 alumina entries under
Section 402(f) of the TAA.
ISSUE:
What is the correct method of appraisement for Company A's
importations of alumina?
LAW AND ANALYSIS:
The primary method of appraising imported merchandise is
transaction value. As you know, 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
amounts for packing costs, selling commissions incurred by the
buyer, assists, royalties and license fees, and proceeds of any
subsequent resale that accrue to the seller. Section 402(b) of
the Tariff Act of 1930, as amended by the Trade Agreements Act of
1979 (TAA; 19 U.S.C. 1401a(b)). The price actually paid or
payable means the total payment . . made, or to be made, for
imported merchandise by the buyer to, or for the benefit of, the
seller. 19 CFR 152.102(f). It will be considered without regard
to its method of derivation . . . and may be the result of
discounts, increases or negotiations, or may be arrived at by the
application of a formula. . . The word "payable" refers to a
situation in which the price has been agreed upon, but actual
payment has not been made at the time of importation. 19 CFR
152.103 (a).
The first question to be addressed is whether there is a
price actually paid or payable, and if so, what that price will
be. The fact that the amount actually payable may be unknown at
the time of exportation will not serve to prevent appraisement
under transaction value where the price is subject to a formula.
There is no price actually paid or payable for shipments of
alumina to Company A that are entered under the provisional price
because the price is subject to adjustment after exportation
witout benefit of a formula. The absence of a firm price for the
merchandise imported under these entries will prevent the
alumina's appraisement under transaction value; resort must be
made to the next available appraisement method.
However, the alumina entered under the final agreed upon
price may be appraised under transaction value unless there is a
limitation upon the use of transaction value as an appraisement
method. The relationship between Company B and Company A may
present such a limitation.
Transaction value cannot be used as the appraisement method
where the buyer and seller are related and the relationship
influences the price. Section 402(b)(2)(B) TAA. There are two
methods of determining whether the transaction value in a related
party transaction is acceptable. The first involves an
examination of the circumstances of the sale; the second, a
comparison of the transaction value with a series of test values.
If the criteria of one method are met, the transaction value will
be accepted for customs purposes.
The circumstances of sale should show that the buyer and
seller, although related, buy from and sell to each other as
though not related. As noted in the Statement of Administrative
Action, this can be done by demonstrating that the price has been
settled in a manner consistent with the normal pricing practices
of the industry in question, or with the way the seller settles
prices for sales to buyers who are not related to him. The
contract between Company B and Company A does stipulate that the
price per ton of alumina delivered to Company A f.o.b. vessel
shall be the fair market value of the alumina as determined each
year by agreement of the parties based on long term supply
arrangements between unrelated parties. If these long term supply
agreements reflect the normal pricing practices of the alumina
industry, then the circumstances of sale test may be satisfied,
and the relationship between the parties will not prevent
appraisement under transaction value. Customs has previously
viewed the influence of market forces on the setting of prices to
be an indication that the relationship did not affect the price.
See TAA No. 19 (HRL 542261, dated March 11, 1981). Therefore,
the fact that the alumina price is derived from "market values"
may serve to satisfy the circumstances of sale test.
Proof that the price is adequate to ensure recovery of all
costs plus a profit that is equivalent to the firm's overall
profit realized over a representative period of time in sales of
merchandise of the same class or kind will also establish, under
the circumstances of sale test, that the price has not been
influenced. However, the information provided by a Company B
representative that the provisional price represents the cost of
production plus a fair profit as gauged against sales between
unrelated firms appears to be a step away from that test.
There is no information on test values.
Assuming you are satisfied that the relationship between
Company A and Company B did not influence the price of the
alumina, the fact that the final price was subject to the approval
of the Australian government should not serve to bar the appraisal
under transaction value of all entries eligible for appraisement
thereunder.
The entries that cannot be appraised under transaction value,
i.e., those entered under the provisional price, will have to be
appraised under the next available appraisement method. In this
particular instance, it may be possible to appraise those entries
under transaction value of identical or similar merchandise. If
you determine that the relationship between Company B and Company
A did not influence the finally agreed upon price of the alumina,
and allow appraisal of entries under transaction value, then that
transaction value may be used in arriving at the transaction value
of identical merchandise. See T.D. 91-15. Otherwise, it will be
necessary to appraise Company A's entries of alumina under the
next available appraisement method. You have already noted that a
deductive value cannot be calculated because the alumina is not
resold in the United States. However you indicate that
information may be available on production costs and profits, from
which a computed value could be derived.
HOLDING:
The alumina entered under the final, agreed upon price may be
appraised under transaction value if you are satisfied that the
relationship between Company B and Company A did not influence the
price. The alumina entered under the provisional price may not be
appraised under transaction value. There may be a transaction
value of identical or similar merchandise on which to base those
appraisements. Otherwise, resort to the next available method
must be made.
2. COMPANY P
Company P of Houston, Texas purchases alumina from Company Q
of the Netherlands. Both companies are subsidiaries of Company R.
The ultimate consignee of the alumina is Columbia Falls Aluminum
Co. The transactions between these parties are governed by an
Alumina/Aluminium Exchange Agreement between Company Q and Company
P.
The agreement is for barter at the rate of one ton metal to
9.9 tons of alumina. For purposes of invoicing, the price shown
is the USTP (average Metals Week U.S. Transaction Price) for the
month prior to the month of shipment, divided by 9.9, and the
result is multiplied by the bill of lading weight. Metals Week is
a weekly trade periodical which reports daily and weekly COMEX
positions, New York Mercantile Exchange positions, London Metals
Exchange prices, etc.
Company P is responsible for paying freight and insurance
charges for the alumina from the port of exportation, and assumes
responsibility for all duties and taxes levied upon importation.
Property and a right of possession of the alumina passes from
Company Q to Company P at the moment at which the carrying vessel
sailing eastward first passes the 135th degree of longitude west.
Company P in turn delivers the aluminum on a CIF, duty unpaid,
basis to a mutually agreed upon Japanese port. Company Q, at
option, may elect not to take delivery of any month's quantity of
metal, in which case Company P shall pay Company Q "in partial
consideration" for the amount of alumina delivered times the
average USTP for the calendar month preceding the scheduled month
of shipment of the aluminum.
There is a provision in the agreement for remittance to
Company P of a portion of Company Q's resale price for the
aluminum metal under certain market conditions.
Company P states (through Company S of New York) that it is
not involved in any price negotiations with the Australian
government, it does not own any part of Company T (the supplier of
the alumina), it does not know Company Q's relationship to Company
T, and it does not know what price is paid to Company T for the
alumina.
ISSUE:
What is the correct method of appraising Company P's
importations of alumina from Australia?
LAW AND ANALYSIS:
Transaction value, the preferred method of appraisement, is
defined in section 402(b)(1) of the Trade Agreements Act of 1979
(TAA; 19 U.S.C. 1401a) as the "price actually paid or payable for
the merchandise when sold for exportation to the United States",
plus specified statutory 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 ...) made for imported
merchandise by the buyer, to or for the benefit of, the seller."
Thus, transaction value requires a sale of imported merchandise
and a direct or indirect payment that benefits the seller.
However, the sale and/or price actually paid or payable for
imported merchandise cannot be subject to any condition or
consideration for which a value cannot be determined with respect
to the imported merchandise. See Section 402(b)(2)(A)(ii) of the
TAA.
Such a condition or consideration may exist in situations
involving countertrade. Countertrade, which is discussed in depth
in General Notice, Countertrade Transactions, Vol. 25, No. 6,
Customs Bulletin, February 6, 1991, is a mechanism of paying for
goods in international trade through the exchange of products for
products. A common countertrade practice is known as barter; this
is a single exchange of goods with no payment in currency made.
The arrangement between Company P and Company Q, in which alumina
is exchanged for aluminum, is one of barter. The rate of exchange
is one ton metal to 9.9 tons of alumina. The price shown on the
invoices is the USTP (average Metals Week U.S. Transaction Price)
for the month prior to the month of shipment, divided by 9.9 and
then multiplied by the bill of lading weight.
The use of transaction value is precluded in a pure barter
situation where the transaction is neither expressed nor settled
in monetary terms, and there is no transaction value or objective
and quantifiable way to determine that value. See General
Notice, p. 6, supra. Company P and Company Q's transactions
appear to be expressed in monetary terms, because there is an
invoice price. However, the invoice price merely reflects the
average U.S. price for aluminum, not that for the merchandise
imported, alumina. The manner in which the invoice price of
alumina is determined - dividing the USTP by 9.9 then multiplying
that figure by the bill of lading weight for the alumina - may not
accurately portray the value of the alumina because the exchange
ratio of 1:9.9 presumably was set by Company P and Company Q, who
are related parties. This, together with the fact that there were
no money transfers between the parties, leads to the conclusion
that the transactions were neither expressed nor settled in
monetary terms. There is also no objective way to determine a
transaction value. Consequently, there is a condition or
consideration for which a value cannot be determined, and Company
P's alumina imports cannot be appraised under transaction value.
The next available appraisement method must be used to appraise
these shipments.
It may be possible to appraise Company P's alumina under
transaction value of identical or similar merchandise, using a
transaction value established by Company B, or by any other
company with alumina importations from Australia. If a
transaction value of identical or similar merchandise is not
found, then, as you have already suggested, there may be enough
cost and profit data available to appraise the merchandise under
computed value.
HOLDING:
The barter arrangement between Company P and Company Q
precludes the use of transaction value. The alumina importations
must be appraised under the next available appraisement method.
There may be a transaction value of identical or similar merchandise
to which resort may be made.
3. COMPANY X AND COMPANY Y
Company V of Oslo, Norway, buys alumina from Company W
(U.S.A). The source of the alumina is Company W (Australia). The
alumina is imported into the United States. The importer of
record is Company X/Company Y, Company V's successor
when Company V merged with Company Z in 1986.
Company W (U.S.A.) generates two invoices for each shipment.
Half of the tonnage is paid for in cash, and half is paid for in
barter with aluminum ingots which Company X/Company Y claims are
of equivalent value.
Company X/Company Y has provided proof of its payment to
Company W (U.S.A.) of the cash portion of one shipment, and the
amount paid matches the cash invoice total. The cash invoices
show a price per ton, and some deduct a "Freight Credit Australia
to all other destinations" of $1.50 per ton.
The barter invoices show a price per ton which is not always
the same as that on the corresponding cash invoices. No evidence
has been presented on the value of the aluminum ingots. However,
all the barter invoices received to date are annotated "Barter 12%
= _____T Metall", with the blank being filled by a figure which is
12% of the quantity on the barter invoice. You interpret this to
mean that Company W (U.S.A.) receives a fixed quantity of aluminum
rather than a fixed value of aluminum.
Company X/Company Y has been asked for a copy of its contract
with Company W, but has not yet furnished it. Company X/Company Y
has stated that it does not participate in price negotiations with
the Australian government. Entries are routinely made on
pro-forma invoices which, you state, in some cases show highly
unlikely prices. Company X/Company Y has failed to respond to
Requests for Information and proposed value advances sent by
Portland, where it also enters alumina.
ISSUE:
What is the correct method of appraising Company X/Company
Y's alumina importations from Australia?
LAW AND ANALYSIS:
In this case alumina from Australia is imported into the
United States by Company X/Company Y. The alumina has been sold
by Company W (U.S.A.) to Company V, Company X/Company Y's
predecessor. Company W (U.S.A.) and Company V are not related.
The situation here involves countertrade. (See previous
discussion of countertrade in Law and Analysis section of Company
P/Company Q transactions). Specifically, it involves a
practice known as counterpurchase, which is an exchange of goods
for goods and money, or an exchange of goods for services and
money. See General Notice, p. 3, supra. Here, Company W
(U.S.A.), the seller, generates two invoices for each shipment of
alumina. Half of the tonnage is paid for in cash, the other half
with aluminum ingots which the buyer claims are of equivalent
value.
As previously mentioned, transaction value is the price
actually paid or payable for the merchandise when sold for
exportation to the United States, plus certain statutory
additions. 19 U.S.C. 1401a(b)(1). The term "price actually paid
or payable" means the total payment made, or to be made, for
imported merchandise by the buyer to, or for the benefit of, the
seller. 19 U.S.C. 1401a(b)(4)(A). Here, there is no price
actually paid or payable because it is not possible to ascertain a
"total payment"; only one half, not all, of the payment is known.
A price cannot be placed on the half of each shipment that is
paid for in barter with aluminum ingots, because even though an
invoice is presented with the alumina importations, the barter
invoices show a price per ton which is not always the same as that
on the corresponding cash invoices. As discussed earlier, the use
of transaction value is precluded in a pure barter situation where
the transaction is neither expressed nor settled in monetary
terms, and there is no transaction value or objective or
quantifiable way to determine that value. Absent further
information on how the barter price was set, the objectivity of
the pricing method cannot be determined. A condition or
consideration exists for which a transaction value cannot be
determined.
Company X/Company Y's alumina importations should be appraised
under the next available appraisement method. There may be a
transaction value of identical or similar merchandise.
HOLDING:
The presence of a countertrade situation precludes the
appraisement of Company X/Company Y's alumina entries under
transaction value. It will be necessary to proceed to the next
available appraisement method, possibly transaction value of
identical or similar merchandise.
We will be more than willing to discuss this further with you
should difficulties arise in appraising these entries. Please
contact Gina Grier or Tom Lobred at (202) 482-7010 should you need
further assistance.
Sincerely,
John Durant
Director, Commercial
Rulings Division