VAL RR:IT:VA 546149 LPF
Port Director
U.S. Customs Service
6 World Trade Center - Rm. 426
New York, NY 10048
RE: Internal Advice concerning appraisement of plastic containers (P- Boxes) under 19 U.S.C. 1401a(f), fallback method; Related Parties
Dear Director:
This is in response to your request for internal advice concerning
the valuation of plastic containers known as P-boxes, in the context of
a prior disclosure made by counsel, Sharretts, Paley, Carter & Blauvelt,
on behalf of Lego Systems, Inc. (LSI). As you are aware, Headquarters
Ruling Letter 958099, issued March 18, 1996, addressed the portion of
your inquiry regarding the tariff classification of the P-boxes.
FACTS:
P-Boxes manufactured in Sweden and France for the exclusive use of
Lego Systems A/S (LSAS) of Denmark and other affiliated companies
including LSI are used for intercompany transport and storage of plastic
toy bricks and shapes produced by the related companies. Two or three
times a year LSAS invoices LSI, as well as the other affiliates, for
lump sum amounts for the P-boxes as follows.
LSI, and other affiliates, notifies LSAS of the number of each type
of P-box it needs. LSAS then purchases the total number of P-boxes,
including any that it may require, from the manufacturer. The
affiliates then are invoiced for a prorated share of the total cost of
the P-boxes according to their anticipated usage of them, both for
storage and for purposes of transport. Counsel explains that the price
between LSAS and its affiliates is a standard price set by LSAS based on
estimates received from the unrelated P-box manufacturer plus any
additional costs (e.g., for applying bar code labels). Although the
actual price charged by the manufacturer to LSAS may vary in either
direction from the standard cost due to price fluctuations in raw
materials, these variances entirely are absorbed by LSAS. The lump sum
periodic payments made from LSI to LSAS are not associated with the
actual import of specific P-boxes. Once imported into the U.S., the P-boxes are exported from, and reimported into, the U.S.
Counsel submits that the P-boxes properly are valued at the LSAS/LSI
invoice price pursuant to 402(f) of the Tariff Act of 1930, as amended
by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a.
Because the P-boxes are not sold to LSI, counsel submits that 402(b),
transaction value, is an inappropriate method of appraisement. Next,
because no other company produces P-boxes identical or similar to those
imported by LSI, counsel provides that 402(c), transaction value of
identical and similar merchandise, is rendered inapplicable. As the P-boxes are not sold in the U.S. after their importation, counsel finds
402(d), deductive value, inappropriate. Further, without the
availability of the requisite computed value information, counsel
provides that 402(e) cannot serve as a method of appraisement. As a
result, counsel posits that Customs is relegated to appraising the P-boxes pursuant to 402(f), the fallback method, based on the value at
which LSAS invoices LSI for the P-boxes. Counsel submits that such an
appraisement would be derived from the "transaction value" of the
merchandise insofar as such a value is based on the price actually paid
by LSAS to the manufacturer for the P-boxes, including all related
packing costs.
ISSUE:
Whether the P-boxes appropriately are appraised based on a fallback
method of valuation.
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the
U.S. is transaction value pursuant to section 402(b) of the TAA.
Section 402(b)(1) of the TAA 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 the enumerated statutory additions.
In this case, because the goods are not "sold for exportation to the
United States," transaction value (402(b)) is not a viable method of
appraisement. Because the P-boxes cannot be appraised based on
transaction value, it is necessary to proceed sequentially through the
subsequent provisions of section 402 of the TAA.
Based on the understanding that no merchandise identical or similar
to the P-boxes is exported to the U.S., the P-boxes are not sold in the
U.S. after importation, and information is not available concerning the
cost of the materials and fabrication employed in the production of the
P-boxes as well as amounts for profit and general expenses, the
merchandise cannot be appraised based on the transaction value of
identical or similar merchandise (402(c)), deductive value (402(d)),
or computed value (402(e)).
Section 402(f) provides that if the value of the merchandise cannot
be determined under the other methods of appraisement delineated within
section 402, the merchandise is appraised on the basis of a value
derived from a method of appraisement, allowing for reasonable
adjustments as necessary to arrive at a value.
From the information provided, we agree that the P-boxes may be
appraised pursuant to a fallback method of valuation derived from a
modified transaction value, i.e., the value at which LSAS invoices LSI,
based on estimates of the price to be charged by the unrelated
manufacturers to LSAS. In this case, we note that although LSAS and LSI
apparently are related parties in accordance with 402(g), our concerns
that the LSAS/LSI price has been influenced by the relationship and that
this figure represents a standard price are allayed by the fact that
LSAS purchases the P-boxes from unrelated manufacturers, the LSAS/LSI
price is based on estimates of the unrelated manufacturer/LSAS price,
and the LSAS/LSI price is derived independently from upward or downward
fluctuations in the manufacturer/LSAS actual price. We would add,
however, that if not otherwise included within the price, it would be
appropriate for the cognizant appraising officer to include as part of
the value of the P-boxes any of the enumerated statutory additions as
set forth in 402(b)(1).
HOLDING:
Based on the information provided, the P-boxes may be appraised
pursuant to a fallback method of valuation, pursuant to 402(f) of the
TAA, derived from a modified transaction value, i.e., the value at which
LSAS invoices LSI, including, as appropriate, any of the enumerated
statutory additions set forth in 402(b)(1).
Sincerely,
Acting Director
International Trade Compliance Division