RR:CTF:VSP H005402 GG
Mr. Gary M. Kisluk
Robertson Inc.
97 Brontre Street North
Milton, Ontario
Canada L9T 2N8
RE: Transaction value eliminated; no sale; application of other appraisement methods
Dear Mr. Kisluk:
This is in response to your ruling request, submitted as an eRuling on December 12, 2006, on behalf of your company Robertson Inc. (“Robertson”). The facts presented below were derived from the ruling request, a supplemental e-mail message dated February 14, 2007, as well as a telephone conversation with you on February 27, 2007.
FACTS:
Robertson, a Canadian corporation, imports fasteners from a related supplier in China. Some of the fasteners are shipped directly to Seattle, Washington from China. Upon arrival in Seattle they are placed in the warehouse of Robertson’s distributor in the United States, Baxter and Rutherford. Robertson is the importer of record. These fasteners are currently appraised under transaction value using the price paid by Robertson to its related supplier. The remaining fasteners, which are identical to the ones sent directly to Seattle from China, are shipped first to Robertson in Canada. Some of these are then transferred to the Baxter and Rutherford warehouse in Seattle.
The warehoused fasteners remain the property of Robertson until sold by the distributor to customers. At that point Robertson issues an invoice to the customer and pays Baxter and Rutherford a commission for the sale and handling of the fasteners. The fasteners in question are used for the general consumer manufacturing industry and are imported regularly by other U.S. importers in high volume from Far East sources.
ISSUE:
What is the correct method of appraisement for the fasteners sent initially to Robertson in Canada and then transferred to the warehouse in Seattle?
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 primary basis of appraisement under the TAA is transaction value, which is defined as “the price actually paid or payable for the imported merchandise when sold for exportation to the United States”, plus certain enumerated additions thereto to the extent they are not otherwise included in the price actually paid or payable. The transfer of the fasteners from Canada to the United States does not involve a sale. Accordingly, the fasteners may not be appraised under the transaction value method.
Under the TAA it is necessary to proceed sequentially through the remaining bases of appraisement to determine the appropriate valuation method. 19 U.S.C. § 1401a(a)(1). The second appraisement method in order of statutory preference is transaction value of identical and similar merchandise under
19 U.S.C. § 1401a(c). This method refers to a previously accepted transaction value of identical or similar merchandise that was exported at or about the same time as the merchandise being valued. Treasury Decision (T.D.) 91-15 (March 29, 1991).
The term "identical merchandise" is defined in 19 U.S.C. § 1401a(h)(2) as:
(A) merchandise that is identical in all respects to, and was produced in the same country and by the same person as, the merchandise being appraised; or
(B) if merchandise meeting the requirements under subparagraph (A) cannot be found..., merchandise that is identical in all respects to, and was produced in the same country as, but not produced by the same person as, the merchandise being appraised.
The term "similar merchandise" is defined in 19 U.S.C. § 1401a(h)(4) as:
(A) merchandise that –
(i) was produced in the same country and by the same person as the merchandise being appraised,
(ii) is like the merchandise being appraised in characteristics and component material, and
(iii) is commercially interchangeable with the merchandise being appraised; or
(B) if merchandise meeting the requirements of subparagraph (A) cannot be found..., merchandise that –
(i) was produced in the same country as, but not produced by the same person as, the merchandise being appraised, and
(ii) meets the requirement set forth in subparagraph (A) (ii) and (iii).
Based on the representations made that Robertson also imports identical fasteners directly into the United States from China, which are appraised under transaction value, it would initially appear that the fasteners imported from Canada could be appraised pursuant to 19 U.S.C. § 1401a(h)(2) using those previously accepted transaction values. We hesitate to rule definitively in such a manner, however, because we understand that U.S. Customs and Border Protection (“CBP”) has never examined the acceptability of the prices paid by Robertson to its related suppliers.
Transaction value is an acceptable basis of appraisement only if, inter alia, the buyer and seller are not related, or if related, the circumstances of sale indicate that the relationship does not influence the price actually paid or payable, or the transaction value of the merchandise closely approximates certain “test values”, i.e., previously accepted values of identical or similar merchandise. 19 U.S.C.
§ 1401a(b)(2)(B).
The validation of a transaction value involving related party prices is discussed in 19 CFR § 152.103(l). That regulation provides, in pertinent part, that:
There will be related person transactions in which validation of the transaction value, using the procedures contained in § 152.103(j)(2), may not be necessary. Customs may have previously examined the relationship or may already have sufficient detailed information concerning the buyer and seller to be satisfied that the relationship did not influence the price actually paid or payable. In such case, if Customs has no doubts about the acceptability of the price, the price will be accepted without requesting further information from the importer. . .
This regulation indicates that CBP is not required to question the acceptability of the related party price. That rule notwithstanding, it would be imprudent for CBP to base its appraisement in a written ruling on a transfer price that has never received any scrutiny. To do so would, by implication, validate the transfer price without an examination of its acceptability having been performed. Consequently, we conclude that the fasteners sent from Canada may be appraised using the transaction value of the identical fasteners purchased by Robertson and imported directly from China provided the transfer prices paid by Robertson are first validated by CBP. No information in this regard is available to us as we write this ruling, so we are unable to address this issue here. In the absence of such a validation, appraisal shall be based on the transaction value of other identical or similar merchandise if such information is available to CBP or Robertson. (Robertson indicates in its ruling request that other U.S. importers regularly import the same type of fasteners in high volume from Far East sources, so this type of information may be easily obtained).
If the transaction value of identical or similar merchandise cannot be used for any reason, then the fasteners must be appraised using the next available appraisement method. This is the deductive value of imported merchandise, unless the importer elects at the time of entry summary to have the computed value method applied before the deductive value method. 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 of 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). The fasteners imported by Roberston are sold domestically from the warehouse. Based on this information, it would appear that the deductive value method may present a viable alternative appraisement method if the preceding methods are unavailable.
Should the fasteners not meet the requirements for appraisement under deductive value, then the next appraisement method is computed value. Under this 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). No information has been presented about this appraisement option, therefore we are unable to comment on its possible use here, although we do note that since the buyer and seller are related companies it may be possible for Robertson to obtain the necessary production information to enable appraisement under the computed value method.
Where 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 of 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). In Robertson’s case, resort to this last method will only be necessary if all of the other appraisement methods previously discussed are unavailable. If that is the case, then appraisal will be based on the fallback method.
HOLDING:
There is no sale when the fasteners are transferred from Canada to the United States, eliminating transaction value as an appraisement method. The fasteners must be appraised under the next available appraisement method as discussed in the ruling.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs official handling the transaction.
Sincerely,
Monika R. Brenner
Chief, Valuation and Special Programs Branch