Port Director
U.S. Customs Service
610 W. Ash Street
San Diego, CA 92188

RE: Application for Further Review of Protest No. 2501-96-10028; Appropriate method of appraisement for fresh asparagus; Sale for exportation; Deductive value under 402(d); HRLs 545755, 543000, 543848

Dear Director:

This is a decision on an application for further review of a protest filed May 30, 1996, against your decision concerning the appraisement of fresh asparagus imported from Mexico. The entries were liquidated on March 8, 1996. With the exception of information already released to the public via prior ruling letters, counsel's request for confidential treatment has been granted for the information included in the submitted importer/grower agreement as well as for the pricing and other proprietary information as designated in counsel's letter of April 17, 1996.


Lee Brands, Inc. (Lee Brands or Lee), a U.S. importer of Mexican asparagus, receives produce on a consignment basis. Lee is obligated to sell on behalf of the Mexican growers employing the best efforts to obtain the highest price possible through its activities as marketeer and sales agent. Once the crop is sold, Lee deducts its commission and other pre-approved categories of costs from the sale proceeds it collects and remits the balance to the individual growers.

Counsel explains that as is customary in the industry where parties have conducted business for years, Lee verbally agrees upon terms and conditions with many of its Mexican growers. However, counsel has submitted a sample of a typical written contract into which Lee occasionally enters. It is counsel's position that the same material terms apply regardless as to whether the contracts between the parties are verbal or written.

The submitted agreement provides that Lee has the exclusive right to market and sell the named grower's asparagus although the grower remains the owner of the crops and bears risk of loss until delivery to a third party buyer. In return for Lee's marketing and other such services, the contract provides that Lee is to retain a service fee calculated as a percentage of the sales proceeds, with specified deductions. The grower is entitled to the remaining proceeds after deduction of the service fee and other costs specified in the agreement. Finally, the agreement provides that the grower and Lee operate independent businesses, without rights or proprietary interests in each other's businesses, and that each acts for its own individual account and profit.

Although title to the asparagus is maintained by the Mexican grower, counsel provides that Lee has absolute discretion in deciding to whom and when the goods are sold and to determine refunds or discounts due to quality problems or quantity discounts. Regardless as to whether the shipments are sold about the time of, or some time after, importation counsel states that Lee is liable to the growers while the crop is in its possession. Accordingly, counsel concludes that the roles and dealings of the parties, in actuality, are quite different than the manner in which they have been characterized through contract. Counsel describes the understanding between the parties as a conditional sales agreement, whereby the seller reserves title as security for payment of the goods. In this regard, counsel provides that Lee only is liable to the growers for losses incurred due to its failure to sell the imported asparagus for reasons other than its unsaleable quality. Thus, counsel submits that Lee's season-end accounting reports prepared for financial settlement purposes with the growers represents a contractual formula with specific figures establishing the transaction value for the imported merchandise.

Counsel submits that although the price actually paid payable for the asparagus is not ascertainable at the time of importation and the merchandise is imported on a consignment basis, that 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, is appropriate insofar as a price may be obtained based on such a contractual formula. In support of its position, counsel cites to Headquarters Ruling Letter (HRL) 543000, issued May 26, 1983, and HRL 543848, issued March 5, 1987, providing for appraisement based on Green Giant's transaction value for its asparagus importations.

Insofar as Lee's method of conducting business is concerned, counsel explains that at the end of each growing season, Lee prepares a final accounting for each grower, including all pertinent revenue and expense figures maintained in accordance with generally accepted accounting principles (GAAP). The result is an average price per pre-selected crate equivalent which is used as the basis of the declared values for importations during the following season. At the end of that season, the actual price is determined again by accounting for all revenues and expenses. These season-end calculations are provided to Customs as the basis for liquidation of Lee's entries.

In the event transaction value is not recognized as the appropriate method of appraisement, counsel submits that because appraisement cannot be based on transaction value of identical or similar merchandise (402(c)), resort to deductive value (402(d)) or a fallback method (402(f)) would be appropriate. With regard to deductive value, counsel claims that the prices utilized by Customs do not consider price adjustments which, due to quality problems for approximately fifteen percent of Lee's importations, may be made long after the time of sale. Noting that a portion of Lee's shipments are not sold until beyond a week from the date of importation and the price adjustments may take up to a month to be finalized, counsel takes issue with Customs' alleged practice of relying upon prices reported for sales conducted the week prior to entry of the instant importations. Additionally, counsel submits that although Lee is the largest importer of asparagus, its commission percentage is not utilized in appraising its importations. For instance, counsel provides that Lee Brands' commission was approximately [****] or [****] percent, yet Customs only authorized a deduction of approximately ten percent.

Whatever method of appraisement ultimately is selected, counsel contends that given the wide variances in pack sizes (e.g., small, standard, large, extra large, jumbo, etc.), weights (e.g., 12, 13 1/2, 15, 27, 28, 30, etc. pounds) and packaging type (e.g., cardboard, wooden crates, and plastic cartons), that the submitted season-end reports, utilizing figures calculated on a weighted average basis, be utilized to value the subject importations. Counsel adds that Lee's season-end figures rely on crate equivalency whereby all weights are converted to one common standard, the thirty pound crate equivalent. We understand Customs may base deductive value of the instant merchandise on other importations of asparagus of the same size and weight and, only if data is unavailable, on those of different sizes and/or weights.


Based on the information provided, whether transaction value or an alternate method of valuation is appropriate for appraisement, and in either case whether such a value may be based on average prices per pre-selected crate equivalents.


As you are aware, the preferred method of appraising merchandise imported into the United States 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. Section 402 (b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus amounts for the enumerated statutory additions (emphasis added). Accordingly, a bona fide sale must exist between the Mexican growers and Lee Brands if the goods are to be appraised based on their transaction value.

In determining whether a bona fide sale has taken place between a potential buyer and seller of imported merchandise, no single factor is determinative. Rather, the relationship is to be ascertained by an overall view of the entire situation, with the result in each case governed by the facts and circumstances of the case itself. Dorf International, Inc. v. United States, 61 Cust. Ct. 604, A.R.D. 245 (1968). Customs recognizes the term "sale," as articulated in the case of J.L. Wood v. U.S., 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974), to be defined as: the transfer of property from one party to another for consideration.

However, several factors may indicate whether a bona fide sale exists between a potential buyer and seller. In determining whether property or ownership has been transferred, Customs considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, Customs may examine whether the potential buyer paid for the goods and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller.

In the present matter, Customs cannot find that a bona fide sale and, hence, a sale for exportation to the U.S. occurred between the Mexican growers and Lee Brands. Simply stated, Customs continues to maintain its position that transactions involving goods which are shipped on consignment do not constitute bona fide sales. See HRL 545755, issued May 18, 1995.

Furthermore, although counsel provides that "Lee is liable to the growers while the crop is in its possession," it is evident from the parties' contractual agreements and understandings that the growers retain ownership of the goods and bear risk of loss until delivery to a third party buyer. Hence, regardless of any "conditional sales agreement" which ostensibly may exist between the parties, Lee apparently does not assume the risk of loss nor acquire title to the goods. Any "liability" on Lee's part appears only to emanate from its obligation to employ its best efforts to obtain the best price possible as marketeer and sales agent, as opposed to an independent buyer/seller. The fact that Lee receives a "service fee" calculated as a specific percentage of the sales proceeds and not consideration, or payment, for the goods themselves supports such a finding. Moreover, HRLs 543000, supra, and HRL 543848, supra, are distinguishable from the instant case. In HRL 543000 Customs found that the Mexican asparagus growers transferred title to Green Giant, the importer/buyer, and a bona fide sale occurred between the parties. Lee, as agent, was responsible for the marketing, resale, and forwarding of the produce in the U.S. for Green Giant. In HRL 543848 Customs found that although importations from the same asparagus growers by Lee for their own account were imported on consignment, transaction value of identical or similar merchandise (section 402(c)) based on Green Giant's importations was appropriate. Because by the time of the entries at issue the Green Giant-Mexican growers joint venture had terminated, it would be inappropriate to value the subject importations using the Green Giant bases of appraisement articulated in these decisions. This holds true regardless of the fact that the same growers and fields are utilized and that Lee maintains the books enabling it, from the point where the joint venture terminated, to incorporate field amortization and related expenses in its season-end cost reports.

Because there is not a transaction value, we proceed sequentially through the subsequent provisions of section 402 of the TAA. The first alternative basis of appraisement is the transaction value of identical or similar merchandise. Section 402(c) of the TAA provides that the transaction value of identical or similar merchandise is the transaction value, accepted as the appraised value under section 402(b), of merchandise identical or similar to the merchandise currently being appraised which was exported to the U.S. at or about the time that the merchandise currently being appraised was exported to the U.S. With the understanding that the instant goods cannot be appraised under section 402(c) in accordance with HRL 543848 and that no identical or similar merchandise is available for appraisement consistent with the analysis employed in HRL 545755, supra, it would be appropriate to resort to the next alternative method of appraisement, deductive value, as set forth in section 402(d).

When utilizing deductive value, the subject merchandise is appraised based on the price at which the merchandise concerned is sold in the U.S in its condition as imported, in the greatest aggregate quantity at or about the date of importation of the merchandise being appraised. Section 402(d)(2)(A)(i). If the merchandise concerned is sold in the U.S. in its condition as imported, but not sold at or about the date of importation, the price at which the merchandise is sold in the greatest aggregate quantity after the date of importation, but before ninety days after such importation, is utilized. Section 402(d)(2)(A)(ii). The unit price at which merchandise is sold in the greatest aggregate quantity means the unit price at which it is sold to unrelated persons at the first commercial level after importation. Section 402(d)(2)(B).

Furthermore, the price determined under section 402(d) is to be reduced by an amount equal to the following:

(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 of 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 international shipments of the merchandise concerned from the country of exportation to the United States;

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....

Section 402(d)(3)(A)(i)-(iv).

Based on the information provided, we find that deductive value serves as the appropriate method of appraisement. In response to the points raised by counsel concerning the manner in which Customs arrived at the deductive value for the subject importations, we provide the following. With regard to the fact that Customs bases its deductive values on weekly figures which do not account for price adjustments to the instant importations, sometimes taking several months to finalize, we stress that section 402(d)(1) provides that "merchandise concerned" as provided in section 402(d) means the merchandise being appraised, identical merchandise, or similar merchandise. In other words, all three types of merchandise may be utilized for appraisement, but there is no indication that one type must have priority over the other. Hence, from a practical standpoint, while Customs generally concerns itself with the sale of the goods being valued, it is not precluded, based on the information available at or about the date of importation, from utilizing on-going sales of identical or similar goods for appraisement. Customs is not required to wait until the instant goods actually are sold or the necessary information concerning such sales is made available. Assuming such prices otherwise fit the criteria and definitions set forth in section 402(d), they may serve as appropriate bases for appraisement.

Insofar as prices and information are available for sales of particular sizes and weights, it would be appropriate to utilize the price at which the greatest aggregate quantity of the instant or identical merchandise is sold in its condition imported at or about the date of importation of the instant merchandise. In cases where data for particular sizes and/or weights is unavailable and deductive value is based on asparagus sales of different sizes and/or weights, the appraising officer would be employing "all reasonable ways and means in his power" and "consider[ing] the best evidence available in appraising merchandise" in accordance with section 500 and the Statement of Administrative Action to the TAA.

Finally, with regard to the commission percentage to be deducted from the price, we reiterate that section 402(d)(3)(A)(i) provides for a deduction from the price for the amount of any commission usually paid or agreed to be paid, in connection with sales in the U.S. of imported merchandise of the same class or kind. Accordingly, we recognize that where a deductive value is based on the price at which the instant merchandise is sold it would be appropriate to deduct the commission percentage remitted to Lee insofar as evidence does not indicate that such amounts do not reflect those "usually" paid or agreed to be paid in accordance with section 402(d)(3)(A)(i). However, it should be noted that in cases where deductive value is based on the price at which identical or similar merchandise is sold, it would be appropriate to deduct the amounts for those actual commission percentages unless evidence that such amounts are not "usual" is presented. In any event, contrary to counsel's statement that Lee's commission routinely is approximately [****] or [****] percent, and Customs authorized a deduction of only ten percent, the submitted sample contract provides for Lee's service fee of [****] percent on all U.S. domestic and Canadian sales and [****] percent on all sales to destinations outside the U.S. and Canada.


Based on the information provided, in accordance with the foregoing, deductive value is the appropriate method of appraisement, without resort to average price adjustments based on pre-selected crate equivalents.

You are directed to deny 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.


Acting Director
International Trade Compliance