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.


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.


Whether the P-boxes appropriately are appraised based on a fallback method of valuation.


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).


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).


Acting Director
International Trade Compliance Division