RR:IT:VA 547168 DWS
Port Director of Customs
9 North Grand Avenue
Nogales, AZ 85621
RE: Request for Internal Advice; Transaction Value; Watermelons
Dear Director:
This is in response to your letter dated August 25, 1998, requesting internal advice concerning the proper appraisement of watermelons imported from Mexico. We regret the delay in responding.
FACTS:
You state that watermelons at issue are imported through the port of Nogales, Arizona, from November through July, in both the seeded and seedless varieties, and are subject to duties from May 1 through September 30 pursuant to subheading 9906.08.10, Harmonized Tariff Schedule of the United States (HTSUS). The subject watermelons, imported in bulk, are graded by size and repacked in cartons or small bins upon arriving at the buyer’s warehouse in Nogales, Arizona, and prior to shipment to the U.S. customer. Typically, the seller will bring bulk shipments of watermelons to Nogales, Sonora, Mexico, where the on-site buyers’ representative may bid on them. The buyer determines the price, usually on a per ton basis, at which he is willing to pay the seller for the watermelons. The seller is free to accept or reject the price the buyer offers. If the seller agrees to the price offered, the watermelons are imported into the U.S. with a pro forma invoice.
Based on the information you have gathered through requests for information and interviews, you contend that it is difficult to definitively state the terms of sale as such terms do not appear on any of the commercial documents, correspondence, etc. You state that, in your interviews, you were told that the terms of sale are FOB Nogales, Arizona; however, you believe a better description is that the watermelons are sold delivered and duty paid. The seller is
responsible for all costs associated with transporting the watermelons to the buyer’s warehouse in Nogales, Arizona (e.g., Mexican and U.S. brokerage charges, duties, freight, scale fee, special permits, etc.). Furthermore, the buyer will only accept quality watermelons. You question whether the fact that title does not pass until the buyer’s final inspection should preclude transaction value. Currently, you state that your port appraises all watermelons imported during the dutiable period (May 1 through September 30) utilizing the deductive value basis of appraisement in accordance with 19 U.S.C. 1401a(d). Watermelons imported outside the dutiable period are being appraised in accordance with 19 U.S.C. 1401a(f).
It is our understanding that you have conducted interviews with two of the larger watermelons buyers (Sandia Distributors and Al Harrison Company) who claim that they have a transaction value for the watermelons. Based upon your review of their accounting records, you have verified that each company sets a non-negotiable price at which it is willing to pay for watermelons on a given day. Prices are quoted verbally to sellers via the telephone, facsimile, and through representatives who patrol truck staging areas in Nogales, Sonora, Mexico.
Sandia Distributors uses a “Truck Arrival Sheet” on which the price for seedless and seeded watermelons is published. Once the seller presents his merchandise at the buyer’s Mexican packing shed, the truck arrival is noted on the form and the sale is consummated. The Al Harrison Company publishes the price it is willing to pay in the form of a purchase order. The seller receives payment for a particular shipment through what is referred to in the industry as a “liquidation.” A liquidation is prepared by the buyer and is a summary of the transaction which shows the name of the seller, the license plate of the truck, a lot number, the amount of watermelons received, the agreed upon price, the gross amount due to the seller, an itemization of the expenses paid by the buyer on behalf of the seller (it is understood by the parties that the seller is responsible for freight costs and costs associated with the importation; however, the buyer often agrees to pay these costs on the grower’s behalf and will deduct these expenses from the total owed the seller for a particular shipment to arrive at the net amount due). Typically, the buyer will pay the seller via check. Sandia Distributors indicated that in certain limited circumstances, they may make payment to a third party on behalf of the seller. At the end of the season, a final liquidation occurs to cover any outstanding balances owed either party.
You state that during your review of each of these company’s documents, you discovered that they provide cash and seeds to many of the sellers with whom they do business. Based upon your experience, you indicate that this arrangement is common in the industry as it is a way to provide financial support to the seller, it encourages seller loyalty, and ensures a steady supply of product. Seed is sold to the grower on cost plus markup basis with the understanding that the buyer will be repaid with watermelons.
Sandia Distributors records the amounts of the advances on an internal company ledger which is also captured on their “grower history report.” The Al Harrison Company did not have
documentation itemizing the amounts advanced to a particular grower, but they did prepare a comprehensive spreadsheet to assist in your office’s review of their importations. According to Al Harrison Company’s calculations which compare the total value declared to Customs, approximately $60,000 in value was not reported. Your office believes much of this problem is attributable to problems associated with weight discussed below.
You state that your office has unsuccessfully attempted to match certain consumption entries with the buyer’s “liquidations” and subsequent payment records. You contend that the payment records and “liquidations” do not match dollar-for-dollar with the pro forma invoices because of overweight shipments and weight estimates. These overweight shipments are a result of different weight limits permitted on Mexican trucks. If these trucks are overweight according to U.S. standards, a quantity of watermelons is removed from the truck and the excess is placed in bins until a truckload of these “overloads” is accumulated and then trucked to the buyer’s warehouse in the U.S. The use of weight estimates makes it difficult to match the “liquidation” dollar-for-dollar to the pro forma invoice because the weight declared on the invoice will differ from the weights referenced on the “liquidation.”
Both companies and their respective sellers operate under the understanding that the seller will repay the buyer with watermelons even though this understanding is never confirmed in writing. The terms of repayment can vary from seller to seller, but both companies stated that this arrangement does not affect the price at which they offer to buy watermelons. To illustrate the possible differences in repayment scenarios you indicated that the buyer’s advance may be recovered all at once at the time of the first shipment, or the buyer may offer only to deduct a percentage of the advance over several shipments based on the relationship the buyer has with a particular seller.
ISSUE:
Whether the facts and submitted documentation support the use of the transaction value basis of appraisement with respect to the transactions in question.
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.
Section 402(b)(4)(A) of the TAA provides in relevant part:
(A) The term "price actually paid or payable" means the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation and related services 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.
Additions to the price actually paid or payable will be made only if there is sufficient information to establish the accuracy of the additions and the extent to which they are not included in the price. See section 152.103(c), Customs Regulations [19 CFR 152.103(c)]. If sufficient information is not available with respect to any amount, the transaction value of the imported merchandise concerned shall be treated, for purposes of this section, as one which cannot be determined. See HQ 544177, dated September 19, 1988.
You question whether there is sufficient information to determine the price actually paid or payable for the subject watermelons to conclude that transaction value, pursuant to Section 402(b) of the TAA, may be used as a basis of appraisement. For purposes of determining transaction value in appraising imported merchandise, the sale for exportation to the U.S. must take place at some unspecified time prior to the exportation of the goods. HQ 543868, dated March 5, 1987. If the sale for exportation does not take place prior to the export of the goods, transaction value is inapplicable as a means of appraisement. Id. Based upon your description of how the watermelons are shipped to Nogales, Sonora, Mexico, and how the buyers communicate the price they are willing to pay for the watermelons to the sellers who are free to accept the price or sell their watermelons elsewhere, we are satisfied that, for purposes of the value statute, a sale for exportation occurs prior to the exportation of the watermelons from Mexico. The fact that title may or may not actually pass until the watermelons are delivered will not serve to preclude a finding that transaction value is the proper basis of appraisement.
Based upon the evidence submitted and your description of the manner in which Sandia Distributors and the Al Harrison Company conduct business, our office is not convinced that sufficient information is available to accurately ascertain the appraisement, utilizing the transaction value basis of appraisement, of the watermelons. For instance, you state that the seed is provided to the growers at cost plus a markup with the understanding that the buyer of the watermelons will be repaid with watermelons. Unless the seed is “supplied directly or indirectly, and free of charge, or at reduced cost, by the buyer” of the imported merchandise and used in connection with the production of the watermelon actually sold for export to the U.S., it does not constitute an assist within the definition set forth in Section 402(h)(1)(a), TAA. Based upon our review of the file, it appears that the importers are getting reimbursed for the seed that they provided, but we are uncertain of whether the seed is provided to the grower at a reduced cost. If the seed is provided to the growers at a reduced cost, it would be considered an assist and would thereby be an addition to the price actually paid or payable. Sufficient information has not been presented to accurately determine the value of the seed as an assist, which would render inapplicable the use of transaction value as a basis of appraisement.
Furthermore, the lack of documentation regarding the amount of cash advances for various costs (e.g., brokerage fees, transportation costs, etc.) and the apparent absence of terms under which these advances are made, leads us to conclude that there is not sufficient information upon which a transaction value may be sustained. In addition, it appears from your request for internal advice that the issue of appraisement of the overweight shipments and the use of weight estimates renders the applicability of transaction value as a practical impossibility.
We note that pursuant to the record keeping requirements contained in Part 163, Customs Regulations (19 CFR Part 163), records are required to be maintained by the person who is engaged in the importing activity. To the extent that satisfactory records are produced by the importers so that the variables involved in these transactions are quantifiable, then transaction value would be an appropriate method of appraisement. However, section 402(b) of the TAA states that “[i]f sufficient information is not available, for any reason, *** the transaction value of the imported merchandise concerned shall be treated, for purposes of this section, as one that cannot be determined.” In the instant situation, insufficient information is available to determine the price actually paid or payable and the accurate valuation of the assist. Therefore, the imported merchandise cannot be appraised pursuant to transaction value under Section 402(b) of the TAA.
When imported merchandise cannot be appraised upon the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in sequential order. The alternative bases of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise; deductive value; computed value; and the "fallback" method of appraisement.
The transaction value of identical or similar merchandise is based upon sales at the same commercial level, and in substantially the same quantity, of merchandise exported to the U.S. at or about the same time as the merchandise being appraised. If no such sale is found, sales of identical or similar merchandise at either a different commercial level or in different quantities, or both, shall be used, but adjusted to take account of any such difference. As we stated in HQ 546999, issued to the Port of Laredo the same date as this decision, if two or more transaction values for identical merchandise are determined, such imported merchandise shall be appraised on the basis of the lower or lowest of such values.
However, as you did not include information with respect to an alternative method of appraisement, at this time our office is unable in this ruling to comment on the precise appraisement of the subject watermelons. Accordingly, you are advised to proceed sequentially through the value statute as described above to obtain proper appraisement of the subject watermelons beginning with the transaction value of identical or similar merchandise. Of particular relevance is HQ 546999. That decision concludes that watermelons imported from Mexico are to be appraised on the basis of previously accepted transaction values of identical or similar merchandise keeping in mind the parameters, pursuant to 402(c) of the TAA, of using the transaction value of identical or similar merchandise.
HOLDING:
Based upon our review of the documentation provided in this case, transaction value may not be used to appraise the imported merchandise because sufficient information cannot be ascertained. Accordingly, you are advised to proceed sequentially through the value statute to obtain proper appraisement of the subject watermelons beginning with the transaction value of identical or similar merchandise. As you did not include information with respect to an alternative method of appraisement, at this time our office is unable to comment on the precise appraisement of the subject watermelons.
On the 60th day from the date of this letter, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.ustreas.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Thomas L. Lobred
Chief, Value Branch