• HQ 546267
• Dec 04, 1998

• Type : Valuation • HTSUS :
•  Related:   545114; 545648; 544775; 543633; 545474   

RR:IT:VA 546267 KCC

Port Director
U.S. Customs Service
423 Canal Street
New Orleans, LA 70130
Attn: Protest Office, Room 200

RE: Application for Further Review of Protest 2002-95-1000935; automotive seat motors; related parties; sale for export; bona fide arm’s length sale; circumstances of sale; Nissho Iwai; Synergy; §402(b)(3) of the TAA; U.S. freight and customs duties; buying commission; included in price actually paid or payable

Dear Port Director:

This is in regard to the Application for Further Review of Protest 2002-95-1000935 dated June 7, 1995, submitted under separate cover on February 9, 1996. Accompanying the Protest is Counsel's Memorandum in Support of the Protest dated July 27, 1995, filed on behalf of their client, Daewoo International (America) Corp. (“Daewoo-America”). Information presented at a meeting on May 21, 1997, and in supplemental submissions dated September 15, and December 2, 1997, was taken into consideration in reaching this decision. We regret the delay in responding to your request.

The information furnished in connection with this Protest will be treated as confidential pursuant to §177.2(b)(7), Customs Regulations (19 CFR §177.2(b)(7)), and 5 U.S.C. §552, as set forth in a letter to Counsel dated June 5, 1998. Additionally, we have excised, in the public version of this decision, the bracketed (“[ ]”) confidential information below.

FACTS:

The imported merchandise consists of two models of DC motors with cover assemblies for power seat assemblies for automobiles (“the seat motors”). You appraised the seat motors under

transaction value, pursuant to §402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”; 19 U.S.C. §1401a), based on the transaction between the importer, Daewoo-America, and the exporter, Daewoo Corporation (“Daewoo-Korea”). You deducted amounts for international freight and insurance costs from the Daewoo-Korean invoice price to Daewoo-America. The price for the seat motors on the Daewoo-Korea invoices to Daewoo-America was CIF facility of the U.S. Customer. The invoice to Daewoo-America did not separately identify costs for U.S. customs duties or the commission paid to the agent.

Daewoo-America purchased the merchandise from Daewoo-Korea, a related trading company in Korea (“Daewoo-Korea”), and imported the seat motors into the United States for resale to [xxxxxxxxxxxxxxxxxxxxxx] (“the U.S. customer”), an unrelated manufacturer of automobile seat assemblies. [xxxxxxxxxxxxxxxxxxxxxxxxxxx], a U.S. company (“the agent”), assists Daewoo-America in selling and marketing the seat motors and other automobile parts in the United States. The agent is not related to the Daewoo Group companies and is paid on a commission basis.

Daewoo-Korea had purchased the imported merchandise in Korea from Daewoo-Precision Industries Ltd. (“Daewoo-Precision”), a related manufacturer, for resale to Daewoo-America. The merchandise was produced in Korea by Daewoo-Precision in accordance with the U.S. customer’s technical specifications and standards. The U.S. customer used model numbers to identify the specifications and standards. The model numbers were imprinted on the imported merchandise.

Daewoo-America, Daewoo-Korea and Daewoo-Precision are members of the Daewoo Group and are related parties pursuant to §402(g) of the TAA. Additionally, the U.S. customer is not related to the Daewoo Group companies.

The background and structure of the transactions are described by counsel as follows. The transactions began in 1988 when Daewoo-America received an inquiry from the U.S. customer about Daewoo-America’s possible supply of seat motors made in Korea to the U.S. customer. Daewoo-America asked Daewoo-Korea about its ability to supply Daewoo-America . Thereafter, price negotiations took place between the Daewoo-America and Daewoo-Korea based upon the purchase price proposed by the U.S. customer. Daewoo-Korea then contacted several Korean manufacturers of automotive parts, including Daewoo Automotive Components Ltd., another member company of the Daewoo Group. This company was not interested in suppling the seat motors. Daewoo-Korea also contacted Daewoo-Precision, which then did not produce automotive parts, but wished to expand its product to include automotive parts. Daewoo-Precision accepted the price proposed by Daewoo-Korea on the condition that it would supply the seat motors in a large scale for a long term.

The U.S. customer subsequently made a number of visits to Daewoo-Precision to evaluate Daewoo-Precision’s manufacturing skills and capabilities. In 1989, after the U.S. customer’s evaluation, Daewoo-Precision produced a number of molds and dies based upon designs and drawings furnished by the U.S. customer. Sample products were shipped to the U.S. customer in late 1989 and commercial shipments followed on an initial basis until February, 1990. In March 1991, Daewoo-America and the U.S. customer signed a long-term Purchase Agreement. It provides that the U.S. customer will purchase from Daewoo-America at least [xx] percent of the U.S. customer’s requirements for the first half of 1991 and at least [xx] percent of its requirements after that period. The agreement is referred to as “Purchase Order No. 011T0012" by the parties. A copy of this agreement was submitted for our examination. Counsel states that Daewoo-America interacts with the U.S. customer on a daily basis such as negotiating delivery schedules, warranties, claims for defective merchandise and proposed modifications to the design of the seat motors. Counsel claims that Daewoo-America engages in these activities on its own authority and at its own risk.

Purchase Order No. 011T0012 sets forth the basic price for the merchandise between the U.S. customer and Daewoo-America. The price was listed as FOB facility of the U.S. customer and the payment term is listed as “net [xx] days” from the date of delivery of the merchandise. This price was subject to adjustments based upon the exchange rate of the Korean currency, the price of copper material and modification of the engineering design of the motors. In the event of any adjustment of the price between Daewoo-America and the U.S. customer, the Daewoo group companies also adjusted their intra-group prices based upon the same factors.

Pursuant to Purchase Order No. 011T0012, the U.S. customer issues a purchase order to Daewoo-America through the agent for its requirements covering a period of five months. Daewoo-America, for its own administrative convenience, divides and allocates the five month requirement by quantities of two or three months. Daewoo-America then issues a purchase order (“DP Contract”) for each allocated quantity required under the U.S. customer’s purchase order. A copy of the DP Contract was submitted for our examination. Under the DP Contract, the price from Daewoo-Korea to Daewoo-America is CIF facility of the U.S. customer. Counsel states that Daewoo-America was named as the beneficiary in the ocean and U.S. inland insurance. Under these terms, Daewoo-America was required to pay Daewoo-Korea upon presentation of certain shipping documents.

Counsel notes that a single Korean freight forwarder was responsible for arranging transportation from the Korean port of exportation to the U.S. customer. The freight forwarder, through a customs broker, paid U.S. customs duties and other import charges on behalf of Daewoo-America. Counsel states that Daewoo-America's reimbursement to the freight forwarder was made through Daewoo-Korea by including the amounts in Daewoo-Korea's invoice price to Daewoo-America. Additionally, Counsel notes that the agent agreed to receive payment of its Daewoo-America commissions from Daewoo-Korea. Thus, Daewoo-America paid the buying commissions to the agent through Daewoo-Korea by including the amounts of the commissions in the Daewoo-Korea invoice to Daewoo-America. A copy of the Agency Agreement was submitted for our examination. Daewoo-America noted that the Daewoo-Korea invoices to Daewoo-America did not separately identify the amounts for U.S. customs duties, other related importing charges and the commissions paid to the agent.

After Daewoo-America and Daewoo-Korea entered into the DP Contract, Daewoo-Korea and Daewoo-Precision enter into an “Export Sales Contract” for the same quantity as in the DP Contract. The Export Sales Contract required Daewoo-Korea to open an irrevocable-at-sight letter of credit which was payable upon Daewoo-Korea’s receipt of the merchandise and receipt of a copy of Daewoo-Precision’s “Tax Accounting Sheet”. Counsel states that the Tax Accounting Sheet is used instead of a commercial invoice and describes the seller, the buyer, the merchandise, the quantity and the sales price. The price from Daewoo-Precision to Daewoo-Korea was “FOB Korean port, (Destination, U.S.A.).” A copy of the Export Sales Contract and Tax Accounting Sheet were submitted for our examination.

Despite their relationship, counsel claims that the price negotiations between Daewoo-America and Daewoo-Korea and, thereafter, between Daewoo-Korea and Daewoo-Precision were conducted at arm’s-length. While the purchase price which the U.S. customer was willing to pay left the Daewoo companies limited room for price negotiation among themselves, each Daewoo company attempted to obtain the most favorable price. Counsel states that the principal factors taken into account in the price negotiations among the Daewoo companies were the costs, responsibilities, financial risks and other commercial risks that each company would incur. Additionally, Counsel states that each of the Daewoo companies acts for its own account and profit, and bears its own risk in the purchase and sale of the seat motors.

As further evidence that the sale between Daewoo-Precision and Daewoo-Korea was conducted at arm’s length, a copy of Daewoo-Precision’s statement regarding its gross and net profit amounts and ratio in 1994 was submitted for our examination. This statement prepared from Daewoo-Precision’s records was submitted to demonstrate that Daewoo-Precision’s price to Daewoo-Korea was adequate to ensure recovery of all costs plus a profit that is equivalent to Daewoo-Precision’s overall profit realized over a representative period of time in sales of merchandise of the same class or kind. Daewoo-Precision provided specific net and gross profit information for our review. Counsel claims that Daewoo-Precision’s net profit of [xx]% for the sales of seat motors, including the subject imported merchandise, closely approximates its overall net profit [xx]% realized in 1994 from the sales of automotive parts. Counsel did state that since the beginning of the transaction in issue and in 1994, Daewoo-Precision’s price to Daewoo-Korea has remained basically the same, subject to an adjustment based upon the exchange rate of the Korean currency, the price of copper material, and modification of the engineering designs of the motors.

As evidence that the sale between Daewoo-Korea and Daewoo-America was conducted at arm’s length, Counsel presented information regarding price negotiating tactics. Counsel noted that the Daewoo companies used the price at which the U.S. customer was willing to purchase from Daewoo-America and the price at which Daewoo-Precision was willing to sell to Daewoo-Korea as starting points for their negotiations of Daewoo-Korea’s price to Daewoo-America. Thus, Counsel states that each company sought a larger share in the difference between Daewoo-Precision’s price to Daewoo-Korea and Daewoo-America’s price to the U.S. customer. Counsel states that in price negotiations, Daewoo-America would defend its mark-up by explaining to Daewoo-Korea that it incurs interest expenses for a [xxx] day period from the date that Daewoo-America pays to Daewoo-Korea until Daewoo-America is paid by the U.S. customer. Counsel states that [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] Copies of memoranda between Daewoo-America and Daewoo-Korea discussing interest rates were submitted for our examination.

Additionally, price negotiations occurred between Daewoo-Korea and Daewoo-America concerning interest rates when Daewoo-Korea believed that the “prime rate” which Daewoo-America was quoting was higher than Daewoo-Korea believed was the prevailing prime rate in the market. Counsel submitted memorandum between Daewoo-Korea and Daewoo-America showing Daewoo-Korea arguing that the prime rate was too high and Daewoo-America countering that its collection risk, the time between when Daewoo-America pays for the seat motors and when it collects from the U.S. customer, was longer than originally thought. Counsel states that these circumstances demonstrate that the Daewoo companies negotiated Daewoo-Korea’s price to Daewoo-America in a manner consistent with the way the price was settled by unrelated parties.

The importer, Daewoo-America, claims that despite the relationship among the Korean companies, the imported merchandise should be appraised at the price at which the foreign manufacturer (Daewoo-Precision) sold the merchandise to the foreign exporter (Daewoo-Korea). In the alternative, should Customs determine that the transaction between Daewoo-Korea and Daewoo-Precision may not form the basis of appraisement, the importer claims that the imported merchandise is entitled to appraisement based upon the CIF price for export from Daewoo-Korea to Daewoo-America, less: (1) freight and insurance charges for international and U.S. inland transportation to the destination, (2) duties and other import charges paid on the imported merchandise, and (3) the commission paid to Daewoo-America’s agent. According to the importer, these amounts were all included in the Daewoo-Korea invoice price to Daewoo-America.

ISSUE:

Whether the imported merchandise may be appraised based on the transaction between Daewoo-Precision and Daewoo-Korea, or whether the merchandise was correctly appraised based on the transaction between Daewoo-Korea and Daewoo-America.

If the merchandise is appraised based on the transaction value between Daewoo-Korea and Daewoo-America, should deductions be made for U.S. freight and customs duties and the commissions paid to Daewoo-America’s agent.

LAW AND ANALYSIS:

The preferred method of appraising merchandise imported into the United States is transaction value pursuant to §402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a). §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 certain enumerated statutory additions, including selling commissions incurred by the buyer.

The “price actually paid or payable” is defined in §402(b)(4)(A) of the TAA as:

the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise...) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller.

Transaction Value:

Counsel contends that the instant situation involves a multi-tiered transaction with the merchandise first being sold from Daewoo-Precision to Daewoo-Korea, then from Daewoo-Korea to the importer, Daewoo-America. Daewoo-America resells to its U.S. customer. Thus, counsel’s position is that two sales took place, with the claimed sale for exportation being that between Daewoo-Precision and Daewoo-Korea.

In Nissho Iwai American Corp. v. United States, 16 CIT 86, 786 F. Supp. 1002 (1992), rev'd in part, 982 F.2d 505 (1992), and Synergy Sport International, Ltd. v. United States, 17 CIT 18 (1993), the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed the proper dutiable value of merchandise imported pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman and a United States purchaser. In both cases, the middleman was the importer of record. In each case, the court held that the price paid by the middleman/importer was the proper basis for transaction value. Each court further said that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm’s length, free from any nonmarket influences, and involving goods clearly destined for the United States.

We note that in the context of filing an entry, Customs Form (“CF”) 7501, an importer is required to make a value declaration. As indicated by the language of CF 7501, the language of the valuation statute, and in accordance with the Nissho Iwai and Synergy decisions and our own precedent, we presume that transaction value is based on the price paid by the importer. See, Headquarters Ruling Letter (“HRL”) 545114 dated May 31, 1994 and HRL 545648 (IA 10/94) dated August 31, 1994. In further keeping with the courts’ holdings, we note that in those situations where an importer requests appraisement based on the price paid by the middleman to the foreign manufacturer, and the importer is not the middleman, the importer may do so. However, it will be the importer’s responsibility to show that such price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must present sufficient evidence that the alleged sale was a bona fide arm’s length sale and that it involved goods clearly destined for the United States. With regard to this Nissho Iwai analysis, the importer, Daewoo-America, is not the middleman. The middleman for this examination is Daewoo-Korea. Thus, Daewoo-America must present sufficient evidence that the sale between Daewoo-Precision and Daewoo-Korea is a bona fide arm’s length sale and that it involves goods clearly destined for the United States.

For Customs purposes, the word “sale” generally is defined as a transfer of ownership in property from one party to another for consideration. J.L. Wood v. U.S., 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974). While J.L. Wood was decided under the prior appraisement statute, Customs adheres to this definition under the TAA. The primary factors to consider in determining whether there has been a transfer of property or ownership are whether the alleged buyer has assumed the risk of loss, and whether the buyer has acquired title to the imported merchandise. See, HRL 544775 dated April 3, 1992 and HRL 543633 dated July 7, 1987. Also relevant is whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller. See, HRL 545474 dated August 25, 1995.

The documents submitted, including the Export Sales Contract between Daewoo-Precision and Daewoo-Korea and the DP Contract between Daewoo-Korea and Daewoo-America support a finding that the merchandise was clearly destined for the United States. However, the evidence falls short of establishing a bona fide arm’s length sale between Daewoo-Precision and Daewoo-Korea.

According to counsel, each time an order is placed by the U.S. customer with Daewoo-America, Daewoo-America enters into a DP Contract with Daewoo-Korea. Daewoo-Korea then executes an Export Sales Contract with Daewoo-Precision. The Export Sales Contract, which is for the same quantity as in the DP Contract, is a form which sets forth certain provisions and leaves blank the portion specifying the delivery date. The date is presumably filled in for each separate transaction. The Export Sales Contract provisions set forth Daewoo-Korea’s obligation to open an irrevocable letter of credit within 15 days after the date of execution of the contract. The Export Sales Contract also contains a penalty provision such that Daewoo-Precision must pay a penalty for each day the merchandise is delivered later than the agreed-upon delivery date with such amount to be offset from the purchase price. Daewoo-Korea also has the option to cancel the contract if Daewoo-Precision’s delay in delivering the goods results in the purchaser from Daewoo-Korea canceling its purchase order contract. Moreover, Daewoo-Precision must compensate Daewoo-Korea for any damages which Daewoo-Korea incurs in connection with a claim which Daewoo-Korea’s purchaser asserts against Daewoo-Korea. Additionally, Daewoo-Precision remains responsible for defective products for two years after the goods have been shipped. However, if a claim is made by Daewoo-Korea’s purchaser for defective products, Daewoo-Precision shall always be responsible for the products or indemnify Daewoo-Korea against a claim made by Daewoo-Korea’s purchaser.

Since Daewoo-Precision is always responsible for the products, we find it difficult to determine that a sale occurred between Daewoo-Precision and Daewoo-Korea. Even, if we were convinced that the transaction is a bona fide sale, there is insufficient information submitted to conclude that the parties transacted with each other as if not related. Daewoo-Korea and Daewoo-Precision are related parties within the meaning of §402(g) of the TAA. §402(b)(2)(B) of the TAA sets forth two conditions under which a transaction value between related parties will be deemed acceptable. The first is where an examination of the circumstances of sale indicates that the relationship between the parties did not influence the price actually paid or payable. The second is where the transaction value closely approximates certain “test” values. 19 U.S.C. 1401a(b)(2)(B).

Under the circumstances of sales approach, if the parties buy and sell from one another as if they were unrelated, transaction value will be considered acceptable. Thus, if the price is determined in a manner consistent with normal industry pricing practice, or with the way the seller deals with unrelated buyers, the price actually paid or payable will be deemed not to have been influenced by the relationship. Furthermore, the price will not be influenced if it is shown 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. Statement of Administrative Action, reprinted in Customs Valuation under the Trade Agreements Act of 1979, Department of the Treasury, U.S. Customs Service (October 1981) at 54; §152.103(j)(2), Customs Regulations (19 CFR 152.103(j)(2)).

Based on the evidence, we cannot find that the circumstances of sale indicate that the relationship between the parties did not influence the price actually paid or payable. As evidence that the transaction between Daewoo-Precision and Daewoo-Korea was conducted at arm’s length such that the circumstances of sale indicate that the relationship between the parties did not influence the price actually paid or payable, a copy of Daewoo-Precision’s statement regarding its gross and net profit amounts and ratio in 1994 was submitted for our examination. Without audited financial statements and the internal management accounts from which the financial statements were derived, we are not persuaded by the figures presented.

With regard to price negotiations between the parties Counsel states the following:

While the purchase price which [xxxxxxx] was willing to pay left the Daewoo companies limited room for price negotiation among them, each Daewoo company attempted to obtain the most favorable price. The principal factors taken into account in the price negotiations among the Daewoo companies were the costs, responsibilities, and financial and other commercial risks that each company would incur.

However, Counsel notes in its December 15, 1997, letter that prices between the parties have not changed except for changes based on the conditions set forth in the Purchase Order No. 011T0012 between the U.S. customer and Daewoo-America, i.e., currency fluctuations, fluctuations in the price of copper and modifications of engineering designs. There is no evidence of any price negotiations between Daewoo-Precision and Daewoo-Korea since the inception of this purchasing arrangement. This is not the type of situation one would expect between unrelated parties.

Moreover, Counsel claims that Daewoo-Precision accepted Daewoo-Korea’s proposed price on the condition that it would supply the merchandise in large scale for a long term. No documentation supporting this statement was submitted. Even if evidence was submitted to substantiate this claim and we found that a sale for export occurred between Daewoo-Precision and Daewoo-Korea, an argument could be made that transaction value is not acceptable pursuant to §402(b)(2)(A) of the TAA. §402(b)(2)(A) of the TAA provides:

The transaction value of imported merchandise determined under paragraph (1) shall be the appraised value of that merchandise for the purposes of this Act only if– (ii) the sale of, or the price actually paid or payable for, the imported merchandise is not subject to any condition or consideration for which a value cannot be determined with respect to the imported merchandise.

It appears that there is a condition, i.e., the settled price was based on the conditions of large scale purchases over a long period of time, for which a value cannot be determined. Thus, transaction value between Daewoo-Precision and Daewoo-Korean would not be acceptable.

It is our position that insufficient evidence was presented to show that the price between Daewoo-Precision and Daewoo-Korea was a bona fide arm’s length sale.

2. Deductions:

Therefore, based on the presumption that transaction value is based on the price paid by the importer, the imported merchandise was appraised based on the price between the importer, Daewoo-America, and Daewoo-Korea which we presume represents an acceptable sale for purposes of transaction. The imported seat motors were appraised under transaction value based on the transaction between Daewoo-America and Daewoo-Korea with a deduction for international freight and insurance costs. In this situation, Counsel contends that deductions should be made from the Daewoo-Korea invoice price for U.S. freight and customs duties and for payments made to Daewoo-America’s agent. As noted by Counsel, the Daewoo-Korea invoices to Daewoo-America did not separately identify the amounts for U.S. freight and customs duties and the commissions paid to Daewoo-America’s agent.

As regards costs that are incurred after the merchandise has been imported, §402(b)(3) of the TAA states that:

The transaction value of imported merchandise does not include any of the following, if identified separately from the price actually paid or payable and from any cost or other item referred to in paragraph (1):

(A) Any reasonable cost or charge that is incurred for-...

(ii) the transportation of the merchandise after such importation.

(B) The customs duties and other Federal taxes currently payable on the imported merchandise by reason of its importation, and any Federal excise tax on, or measured by the value of, such merchandise for which vendors in the United States are ordinarily liable.

See also, §152.103(i), Customs Regulations (19 CFR §152.103(i)). The above cited statutory provision clearly states that the transaction value of imported merchandise does not include any reasonable cost or charge incurred for the transportation of merchandise after importation and cost incurred for customs duties of the imported merchandise that is identified separately from the price actually paid or payable. The actual U.S. freight and customs duties, not the estimated costs, are excluded from the price actually paid or payable.

In order to deduct U.S. freight and customs duties, these costs must first be included in the price actually paid or payable. Pursuant to the DP Contract, the price from Daewoo-Korea to Daewoo-America is CIF facility of the U.S. customer. Based on these terms of sale, Daewoo-American claims that Daewoo-Korea is responsible for all the costs, including U.S. duties, insurance and freight costs, associated with delivering the seat motors to the U.S. customer’s facility. We note that normally, C.I.F. terms of sale are to the named port of destination. See, International Chamber of Commerce, Incoterms, at 50 (1990). If we agree with Daewoo-America’s claim, the terms of sale, CIF facility of the U.S. customer, appear to be more akin to “DDP” terms of sale. “DDP” is Free Delivered Duty Paid which means deliver duty paid to the named place of destination. In DDP shipments the seller fulfills his obligation to deliver when the goods have been made available at the named place in the country of importation. The seller has to bear the risks and costs, including duties, taxes and other charges of delivering the goods cleared for importation. See, International Chamber of Commerce, Incoterms, at 92 (1990). Thus, if the terms are sale in the Daewoo-Korea to Daewoo-America are more akin to DDP, then the U.S. duties and domestic transportation costs are included in the Daewoo-Korea to Daewoo-America price.

It is our position that the terms of sale are confusing and, therefore, are not persuasive in establishing that U.S. freight and customs duties are included in the price actually paid or payable. No other evidence was submitted to establish that these costs are included in the price. Additionally, as admitted by Daewoo-America, the cost for U.S. freight and customs duties was not separately identified from the price actually paid or payable. Thus, even if we found that the U.S. freight and customs duties were included in the price actually paid or payable, we do not have the authority to deduct them for the price. Pursuant to §402(b)(3) of the TAA, since these costs were not separately identified from the price, we do not have authority to deduct them from the price actually paid or payable.

Additionally, Counsel states that a deduction should be made from the Daewoo-Korea invoice price for the commission paid to Daewoo-America’s agent. Counsel notes that the agent agreed to receive payment of its Daewoo-America commissions from Daewoo-Korea. Thus, Daewoo-America paid the buying commissions to the agent through Daewoo-Korea by including the amounts of the commissions in the Daewoo-Korea invoice price to Daewoo-America.

As a general matter, bona fide buying commissions, which are not included in the price actually paid or payable, are not added to the price actually paid or payable. Pier 1 Imports, Inc. v. United States, 708 F. Supp. 351, 13 CIT 161, 164 (1989); RosenthalNetter, Inc. v. United States, 679 F. Supp. 21, 23, 12 CIT 77, 78 (1988); JayArr Slimwear, Inc. v. United States, 681 F. Supp. 875,878, 12 CIT 133, 136 (1988). Where the existence of an agency relationship is not clearly established, the legal relationship is not that of agency. New Trends, Inc. v. United States, 10 CIT 637, 645 F. Supp. 957 (1986). In this regard the importer has the burden of proving the existence of a bona fide agency relationship and that payments to the agent constitute bona fide buying commissions. Rosenthal Netter, 679 F. Supp. 21, 23; New Trends, Inc., 645 F. Supp. 957. Where the relationship between the parties is that of buyer and seller rather than principal and agent, an item claimed to be a "buying commission" is not deductible from appraised value. B & W Wholesale Co., Inc. v. United States, 462 F. Supp. 1399, 58 CCPA 92, C.A.D. 1010 (1971).

Additionally, in Moss Manufacturing Co., Inc. vs. United States, 13 CIT 420, 714 F. Supp. 1223 (1989); aff’d., 896 F.2d 535 (1990), the court held that monies disbursed by the buyer to the seller with directions from the buyer to remit the payment to the buyer's agent, who assisted in bringing about the sale, were properly included in price actually paid or payable of the imported merchandise. The court stated that the payment was a disbursement for the benefit of the seller. Therefore, as the payment went from the buyer to the seller it was presumed to be part of the price actually paid or payable.

In this situation, Daewoo-America’s commissions to its agent are included in the price actually paid or payable for the imported seat motors. As the commissions are included in the price, there is no statutory authority which allows for the buying commissions deduction. Thus, we can not deduct the buying commission from the Daewoo-Korea invoice price.

HOLDING:

Based on the evidence presented, the price between Daewoo-Precision and Daewoo-Korea does not constitute the price actually paid or payable for purposes of determining the transaction value of the imported motor seats. We affirm your appraisement of the seat motors under transaction value based on the price actually paid or payable between Daewoo-Korea and Daewoo-America. Additionally, under the circumstances presented, no deductions should be made for U.S. freight and customs duties or commissions paid to Daewoo-America’s agent.

The Protest should be DENIED. In accordance with §3A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993, Subject: Revised Protest Directive, this decision, together with the Customs Form 19, should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels.

Sincerely,

Thomas L. Lobred
Chief, Value Branch