RR:IT:VA 546442er
Mark K. Neville, Jr.
International Trade Counsellors
51 Marion Road
Westport, Connecticut 06880
RE: Request for a Ruling regarding Appraisement of [xxxxxxxx]; Deductive Value; 19 U.S.C. 1401a(d); Fallback Method; 19 U.S.C. 1401a(f).
Dear Mr. Neville:
This is in response to your request for a ruling submitted on behalf of your client [xxxxxxxxxxxx] dated July 19, 1996 and supplement thereto dated May 28, 1997, regarding the appraisement of certain [xxxxxxxxxxxxxxx]. Your request for confidential treatment of certain information is granted. All confidential information appearing in this decision is bracketed and will be deleted from any published version. We regret the delay in responding.
FACTS:
Your client is a manufacturer of [xxxxxxxxxxxxxxx]. Up to this point your client has been importing the merchandise in response to specific customer orders and the merchandise has been appraised under transaction value. In order to expand sales in the U.S., and to be more responsive to customer demands by shortening the ordering and delivery process, your client has established a warehouse in the U.S. where the imported merchandise will be maintained for resale. Under the newly proposed method of transacting business, the imported merchandise will no longer be imported into the U.S. pursuant to a sale.
Once the merchandise is imported and placed in inventory, the U.S. customers will place orders and make purchases of the merchandise. Your client will continue to solicit orders from U.S. customers through its sales organization staff based in the U.K. which will be visiting the U.S. on a regular basis. Your client will also rely on the services of a selling agent in its sales to U.S. customers. The agent is paid a commission of 7.5% on net sales. Orders for the imported merchandise will be placed by the U.S. customers either directly through the sales staff in the U.K. or with the selling agent.
Your client does have price lists but claims that due to the competitive nature of the business, discounts from the price lists are common. The price lists are not made available to customers and are for internal use only. Each customer’s product might be slightly different and these differences will give rise to different selling prices, e.g., to reflect the presence of [xxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]. Prices to customers tend to stay fixed for several months at a time. As far as we know, none of your client’s customers is related to your client.
Your client proposes to clear the imported merchandise with a pro forma invoice at dollar amounts that represent best estimates of the resale price, less certain amounts. Your client will retain title and bear risk of loss for the merchandise at all times during its storage and until the merchandise is resold to the U.S. customers.
ISSUE:
Under the circumstances, how should merchandise imported and placed in inventory for sale in the United States be appraised?
LAW AND ANALYSIS:
Merchandise imported into the U.S. is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”; 19 U.S.C. 1401a). The preferred method of appraisement is transaction value, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus certain statutorily enumerated additions. 19 U.S.C. 1401a(b)(1). In the instant case the merchandise is not imported pursuant to a sale for exportation; consequently, it cannot be appraised on the basis of transaction value. See e.g., HRLs 545313 dated January 31, 1995 and 544845 dated November 9, 1993.
When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. 19 U.S.C. 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. 1401a(c)); deductive value (19 U.S.C. 1401a(d)); computed value (19 U.S.C. 1401a(e)); and the “fallback” method (19 U.S.C. 1401a(f)).
The transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity, or merchandise exported to the U.S. at or about the same time as that being appraised. 19 U.S.C. 1401a(c). In the instant case we assume there will be no sales of similar or identical merchandise made at or about the same time as the merchandise imported for inventory. Thus it is not possible to appraise on the basis of the transaction value of similar or identical merchandise.
Under the deductive value method, merchandise is appraised on the basis of the price at which the merchandise is sold in the U.S. in its condition as imported and in the greatest aggregate quantity either at or about the time or importation, or before the close of the 90th day after the date of importation. 19 U.S.C. 1401a(d)(2)(A)(i)-(ii). This price is subject to certain enumerated deductions. 19 U.S.C. 1401a(d)(3). In the instant case, some of the merchandise is resold to unrelated parties within 90 days of importation but a significant portion of the merchandise is not sold until after 90 days of importation. Consequently, it is possible that the merchandise sold within 90 days of importation may be appraised under deductive value; however, with regard to the remainder of the merchandise, because the merchandise is not resold within the allowable time constraints, deductive value is not appropriate and the other means of appraisement must be considered. See, HRL 546120, dated March 26, 1996.
Having established that the merchandise sold within 90 days of importation may be appraised under deductive value it still remains to be determined how the remaining merchandise which is not sold within this time frame should be appraised. Under the computed value method, merchandise is appraised on the basis of the material and processing costs incurred in the production of imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. 19 U.S.C. 1401a(e)(1). As far as we know, the information necessary for appraisement of the remaining merchandise under computed value is not available.
When merchandise cannot be appraised under the methods set forth in 19 U.S.C. 1401a(b)-(e), its value is to be determined in accordance with the “fallback” method set forth in section 402(f) of the TAA. The fallback method provides that merchandise should be appraised on the basis of a value derived from one of the prior methods reasonably adjusted to the extent necessary to arrive at a value. 19 U.S.C. 1401a(f)(1).
The imported merchandise is never sold to the importer nor, we assume, is identical or similar merchandise sold to the importer in a timely manner; thus transaction value and transaction value of identical and similar merchandise were originally eliminated as bases of appraisement. Likewise the merchandise cannot be appraised under section 402(f) based on a reasonably adjusted transaction value or transaction value or identical or similar merchandise. However, the merchandise resold more than 90 days after importation may be appraised under section 402(f) based on a reasonably adjusted deductive value approach.
19 U.S.C. 1401a(d)(2)(B) provides that:
For purposes of subparagraph (A), the unit price at which merchandise is sold in the greatest aggregate quantity is the unit price at which such merchandise is sold to unrelated persons, at the first commercial level after importation... in a total volume that is (i) greater than the total volume sold at any other unit price, and (ii) sufficient to establish the unit price.
19 U.S.C. 1401a(d)(3) further provides that:
(A) The price determined under paragraph (3) shall be reduced by an amount equal to --
(i) any commission usually paid or agreed to be paid or the addition usually made for profit and general expenses, in connection with sales in the United States or imported merchandise that is of the
same class or kind, regardless of the country of exportation, as the merchandise concerned;
(ii) the actual costs and associated costs of transportation and insurance incurred with respect to shipments of such merchandise from the place of importation to the place of delivery in the United Sates, if such costs are not included as a general expense under clause (i);
(iii) the usual costs and associated costs of transportation and insurance incurred with respect to shipments of such merchandise from the place of importation to the place of delivery in the United States, if such costs are not included as a general expense under clause (i);
(iv) the customs duties and other Federal taxes currently payable on the merchandise concerned 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;...
(B) For purposes of applying paragraph (A) --
(i) the deduction made for profits and general expenses shall be based upon the importer’s profits and general expenses, unless such profits and general expenses are inconsistent with those reflected in sales in the United States of imported merchandise of the same class or kind, in which case the deduction shall be based on the usual profit and general expenses reflected in such sales, as determined from sufficient information; and
(ii) any State or local tax imposed on the importer with respect to the sale of imported merchandise shall be treated as a general expense.
(C) The price determined under paragraph (2) shall be increased (but only to the extent [sic] such costs are otherwise included) by an amount equal to the packing costs incurred by the importer or the buyer, as the case may be, with respect to the merchandise concerned.
As described above, it appears based on the information presented that the that the merchandise sold before the 90th day after importation may be appraised under a deductive value approach and that merchandise sold after the 90th day after importation may be appraised under the fallback method using a modified deductive value approach. Because we have not been presented with sufficient details concerning the makeup of the deductions which you propose to make from the resale price we cannot rule on whether such deductions are appropriate. It is incumbent on the importer to provide sufficient information and to correctly appraise their imported merchandise; however, the final determination regarding the appropriateness of the proposed figures, including the subject deductions, will be subject to the discretion of the Customs officer at the port of entry.
HOLDING:
Based on the information presented, it appears that the merchandise resold within 90 days after importation may be appraised using a deductive value method of appraisement. Concerning the merchandise which is not resold within this time frame, appraisement under the fallback method using a modified deductive value approach is acceptable. The importer should work out the final details of appraisement with the Customs officer at the port of entry, including the appropriateness of the proposed deductions.
Sincerely,
Thomas L. Lobred
Chief, Value Branch