VAL RR:IT:VA 546736 EK
Mr. David Serko
Serko & Simon
One World Trade Center, Suite 3371
New York, N.Y. 10048
RE: Prospective Ruling Request; Ecofuel; Price Actually Paid or Payable Pursuant to Pre-Determined Formula; Price Adjustments; Related Parties
Dear Mr. Serko:
This is in response to your request of April 29, 1997, regarding your client, Ecofuel, an Italian company. You are requesting a ruling as to the valuation of MTBE, an ether used as a gasoline oxygenating additive and as an octane booster, that is imported into the United States. We regret the delay in responding.
FACTS:
Ecofuel is involved in a joint venture in Saudi Arabia with a State owned company, Sabic, to produce MTBE. Ecofuel has a 10 percent interest in Sabic. Therefore, for Customs valuation purposes, the parties are related within the meaning of section 402(g) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a(g)).
The sale and importation of MTBE occurs in one of the following two ways: 1) Ecofuel usually, but not exclusively, purchases the MTBE from Sabic and then resells the product to American Agip, a sister company in the United States (related parties). The price between Ecofuel and Agip is determined pursuant to a formula contract price. Agip is the importer of record and resells the MTBE to customers in the United States. 2) Ecofuel purchases the MTBE from either Sabic or other third parties and sells the product to Agip. Again, the price between Ecofuel and Agip is determined pursuant to a formula contract price. However, in this situation, Ecofuel acts as importer of record.
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You indicate that the essential terms of both contracts are identical, i.e., identification of buyer and seller, title and risk of loss terms. However, in one contract, the buyer (Agip), is Ato serve as importer of record and is responsible for all ACustoms and Importation fees@ on cargo. This contract specifically excludes Aimport duty and charges paid to U.S. Customs.@ In the second contract, the Ecofuel is to serve as importer of record and is responsible for all ACustoms and Importation fees.@
With regard to the purchase price, in both situations, the contracts state: A[i]n U.S. cents per gallon, determined by the average high/low during NOR (Notice of Readiness) month of the average MTBE U.S. Gulf spot quotation as reported by DeWitt and ICIS in cents per gallon@. The NOR is defined as the period when the vessel notifies the port that it is ready to unload.
With regard to this price determination, you indicate that the price is the average of the published high and low prices quoted in the trade publications DeWitt and ICIS for the NOR month which is reported by an independent survey company. The Aspot quotation@ is the high/low price average.
For Customs entry purposes, your client intends to use a provisional invoice. You indicate that this will include estimates for the price of the MTBE, duty and other charges. At a time specified in the particular contract, i.e., net 30 days from NOR date at discharge port, payment is then made by Agip by wire transfer to Ecofuel, and all necessary adjustments to the provisional invoiced price due to fluctuations in the published MTBE price are made.
ISSUE:
Whether the price, as determined by a specified formula, represents the price actually paid or payable pursuant to transaction value.
LAW AND ANALYSIS:
Merchandise imported into the United States 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 under the TAA is transaction value, which is defined as the Aprice actually paid or payable for the merchandise when sold for exportation to the United States.@ plus certain enumerated additions. 19 U.S.C. 1401a(b)(1). The term Aprice actually paid or payable@ means the
Atotal payment (whether direct or indirect, and exclusive of any
costs, charges, or expenses incurred for transportation, insurance, and related services
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incident to the international shipment of the merchandise from the country of
exportation to the place of importation in the United States) 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).
In order for transaction value to be applicable, there must be a price actually paid or payable when sold for exportation to the United States. In 19 CFR 152.103(a), Customs Regulations, the following is provided with respect to the price actually paid or payable:
In determining transaction value, the price actually paid or payable will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula, such as the price in effect on the date of export in the London Commodity market. The word Apayable@ refers to a situation in which the price has been agreed upon, but the actual payment has not been made at the time of importation . . . .
Customs has the authority to appraise imported merchandise pursuant to an agreed-upon formula between the parties using transaction value, as long as a final sales price can be determined at a later time on the basis of some future event or occurrence over which neither the seller nor the buyer have any control. If the future event is subject to the control of either the seller or the buyer, then the formula fails to establish a Aprice actually paid or payable@ pursuant to transaction value.
See, 545618 dated August 23, 1996; 545388 dated October 21, 1994.
We agree with your conclusion that the price determined through application of the agreed-upon formula between the parties may represent the price actually paid or payable for the merchandise. The final sales price will be determined based upon the set price as published in DeWitt and ICIS on a specified future date. This standard in determining the price is a future event over which neither the seller nor the buyer has any control, and the formula upon which to determine the price is agreed to prior to the exportation of the goods.
Please note that the parties in this case are related. Although we agree that pursuant to the agreed-upon formula a price actually paid or payable for the imported merchandise in the determination of transaction value may be established, we
have no information regarding the acceptability of that price.
With respect to related parties, 19 U.S.C. 1401a(b)(2)(b) of the TAA provides that the transaction value between a related buyer and seller is acceptable if an examination of the circumstances of the sale of the imported merchandise indicates
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that the relationship between the parties did not influence the price actually paid or payable, or if the transaction value of the imported merchandise closely approximates certain test values. If it is shown that the buyer and seller, albeit related, buy and seller to each other as if they are not related, this will demonstrate that the price has not been influenced by the relationship. If the price is settled in a manner consistent with the normal pricing practices of the industry in question, or with the way the seller established prices for sales to unrelated buyers, then this will indicate that the price has not been influenced by the relationship. See, 19 CFR 152.103(l).
If in fact the method of determining the price actually paid or payable for MTBE is commonly determined in the industry by the set price as published in DeWitt and ICIS on a specified future date, then this may possibly supply the evidence needed to establish the acceptability of the price between the related parties.
No information has been provided regarding the acceptability of the price determined pursuant to the formula between the related parties. Therefore, although we agree with your conclusions regarding the agreed-upon formula establishing the price, this ruling does not address whether this price is acceptable for purposes of determining transaction value.
HOLDING:
The agreed-upon formula between the parties may represent the price actually paid or payable for the imported MTBE pursuant to transaction value.
Sincerely,
Acting Director,
International Trade Compliance Division