VAL CO:R:C:V 544455 LPF

District Director
U.S. Customs Service
555 Battery Street
San Francisco, CA 94111

RE: Application for Further Review of Protest No. 28099-89- 001022; Appraisement of Optoelectronic Components; Related Party Transactions; 19 U.S.C. 1401a(b); Transaction Value; 19 CFR 10.112; HRL 555269

Dear Sir:

This is a decision on an application for further review of a protest filed May 18, 1989, concerning the appraisement of optoelectronic components. The entries were liquidated on February 17, 1989. We received numerous submissions from, and held several meetings (most recently on September 27, 1994) with, counsel concerning the matter. We regret the delay in responding.


This decision concerns the appraisement of optoelectronic components imported by Siemens Components, Inc., Optoelectronics Division ("Siemens Opto"), a U.S. corporation, during November and December 1988. As the parent company, Siemens Opto is the buyer of the merchandise and provides raw materials on a consignment basis to its foreign subsidiary seller, Siemens Litronix Malaysia, Sdn., Bhd. ("Siemens Malaysia"). Siemens Malaysia manufactures optoelectronic components and related products primarily for sale to its parent, Siemens Opto, in the United States and also to related companies in Canada and Europe. Although Siemens Opto also has world-wide sales to unrelated parties, there are no sales of identical or similar merchandise to unrelated parties in the U.S.

Cash is provided by Siemens Opto to Siemens Malaysia on an as-needed basis, without regard to the value of the product sold to Siemens Opto or other related companies. The cash payments are not related to any specific shipment of merchandise.

Counsel provided two separate profit and loss statements. The "Profit and Loss Statement with GSP" pertains to all sales to Europe that qualify for European GSP and include raw materials in their cost of sales. The "Profit and Loss Statement without GSP" pertains to related sales to Siemens Opto, Siemens Canada, Siemens AG (for non-qualifying European GSP products), and unrelated trade sales. Raw materials are not included because they are consigned to Siemens Malaysia for all sales of non European GSP-qualified products. In addition, the sales to the U.S. do not reflect amounts for general expenses and profit. For each of the fiscal years 1986, 1987, and 1988, the respective "Profit and Loss Statement without GSP" shows that Siemens Malaysia has operated at a loss for sales other than European GSP-qualified products. However, for the fiscal years ending September 1988 and onward, the combined Siemens Malaysia profit and loss statements, reflecting sales to the U.S. and the rest of the world, showed an overall profit.

The parent company, Siemens Opto, sets the transfer prices to be charged to it by Siemens Malaysia, without negotiation. The transfer prices, reflected on intercompany invoices, are based on the standard costs of direct labor and factory overhead in effect at the time of the transaction, plus a five percent margin to account for general and administrative expenses, etc. Because raw materials are consigned to Siemens Malaysia for all sales that are not European GSP-qualified products, they are not reflected in the transfer price. These transfer prices are not used for Customs entry purposes.

Products manufactured by Siemens Malaysia and shipped to Siemens Opto are invoiced at special prices for U.S. Customs entry purposes, that are not recorded in the books of either company. They reflect amounts for consigned materials, general and administrative expenses, and assists, in addition to standard costs of direct labor and factory overhead. Counsel provides that, "the special invoice prices are estimates by Siemens Opto to ensure that there is little or no additional duty liability as a result of its year-end computed value cost reconciliation."

For fiscal years 1986 and 1987, and in all years prior, you appraised the merchandise produced by Siemens Malaysia under computed value, pursuant to 19 USC 1401a(e). Annual reconciliations of entered values with actual costs, for each of those years, were accepted for final computed value appraisement purposes, because Customs had previously concluded that there was no transaction value for the imported merchandise.

In March 1989, the appraising officer issued a Notice of Action (Customs Form 19) indicating that all outstanding entries would be appraised on the basis of transaction value instead of computed value. Counsel contends that the transaction between the buyer and seller is not acceptable as representing the transaction value because the relationship of the parties influences the price actually paid or payable. Moreover, while the appraising officer, based on his review of past annual cost reconciliation submissions believes that the previously accepted computed values closely approximate the values declared at the time of entry, counsel has submitted a comparison of values which he believes demonstrates that the appraised values do not closely approximate the computed values.

It also is your position that because no GSP claim via the proper documentation (Customs Form A) was made for the merchandise at the time of entry or within 90 days of liquidation, the merchandise should not be entitled to a free rate of duty under the GSP.


Based on the evidence submitted, whether it has been demonstrated that the merchandise was improperly appraised based on transaction value and whether the merchandise may be entitled to entry under the GSP.


As you are aware, the preferred method of appraisement is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), codified at 19 U.S.C. 1401a. However, imported merchandise is appraised under transaction value only if the buyer and seller are not related, or if related, the transaction value is deemed to be acceptable. In this case, Siemens Malaysia, the seller, and Siemens Opto, the buyer, are related pursuant to section 402(g)(1)(G) of the TAA. Section 402(b)(2)(B) of the TAA provides that a transaction value between related parties will be deemed acceptable if an examination of the circumstances of sale indicates that the relationship between the parties did not influence the price actually paid or payable or where the transaction value closely approximated certain "test" values.

At issue in this case is whether, as counsel contends, the test value (i.e., computed value for identical merchandise) does not closely approximate the transaction value between Siemens Malaysia and Siemens Opto (i.e., special invoice prices). In this regard, we note that "test values" should reflect values previously accepted by Customs for appraisement purposes. In this case, it appears that counsel's analysis is based on a comparison of the reconciled computed values and the entered values (reflected by the special invoice prices) both for the 1988 fiscal year.

It continues to be Customs position that in determining whether a test value closely approximates an instant transaction value, that the test value reflect a value previously accepted as a customs value. We have no legal authority to utilize values for the same entries of merchandise, based on different valuation methods, as evidence as to whether a test value closely approximates the instant transaction value. Insofar as this understanding accurately reflects what counsel's analysis represents, the protestant has not substantiated its position that the values at issue do not closely approximate each other. In addition, we presume that in reaching your determination that the instant entered values closely approximate test values, the appraising officer properly considered previously accepted test values, in this case computed values, by which prior entries of such merchandise had been liquidated. Furthermore, based on the information currently before us, we cannot, at this time, confirm that the figures presented by counsel would, in any event, accurately reflect the computed value for the merchandise entered during 1988. Accordingly, in the event that 1) any of the assumptions made above are incorrect and 2) you cannot find that the circumstances of the sale indicate that the price actually paid or payable for the merchandise was not influenced by the relationship between the parties, we would instruct you to accurately appraise the instant merchandise based on the appropriate computed value as determined by your office. With regard to the protestant's GSP claim, section 10.112, Customs Regulations (19 CFR 10.112) explains that although the proper documentation, in this case the Customs Form A, establishing protestant's GSP claim, was not filed at the time of entry, as long as failure to file it was not due to willful negligence or fraudulent intent, the documentation may be filed any time before liquidation or, if the entry was liquidated, before liquidation became final. In Headquarters Ruling Letter, 555269, issued December 20, 1990, Customs recognized that if liquidation was timely protested, the protestant should be afforded an opportunity to submit documentation establishing free or reduced duty entry. Accordingly, in this case, because liquidation was timely protested, the protestant, if desired, is entitled to submit such documentation. We note, however, that the accuracy of such documentation would be subject to the above findings concerning the appropriate appraisement of the merchandise.


Based on the evidence submitted, with the assumptions discussed above, it has not been demonstrated that the merchandise was improperly appraised based on transaction value. Although the protestant is entitled to submit documentation concerning its GSP claim, the accuracy of such documentation would be subject to the findings reached in this decision concerning the appropriate appraisement of the merchandise. You are directed to dispose of the protest in accordance with the foregoing. A copy of this decision with the Form 19 should be sent to the protestant.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision 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 of 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 to the public via the Diskette Subscription Service, the Freedom of Information Act and other public access channels.


John Durant, Director
Commercial Rulings Division