OT:RR:CTF:VS H086775 GG

Assistant Port Director, Trade
U.S. Customs and Border Protection
200 East Bay Street
Charleston, SC 29401

RE: Request for Internal Advice; Valuation of Automobile Components; Foreign Trade Zone

Dear Ms. Gibson:

This is in response to your memorandum dated November 25, 2009, which forwarded an internal advice request submitted by [Company A]. Our response also takes into account information provided in a conference call with [Company A] and its representatives on February 25, 2010. [Company A] has requested that certain information contained in its request and accompanying attachments be accorded confidential treatment, on the basis that it contains trade secrets and commercial information regarding [Company A’s] products and processes, the disclosure of which would cause substantial harm to its competitive position. We grant the request. The bracketed portions of this decision constitute confidential information pursuant to section 177.2(b)(7), Customs Regulations, and will be deleted from published versions of the decision.

FACTS:

[Company A] purchases automotive components from foreign suppliers, some of which have been designated by [Company A’s] customer, [Company B]. [Company B] maintains business relationships with these directed suppliers, and negotiates the prices for the components sold to and received by [Company A’s] facility in [XXX] on [Company A’s] behalf. Once prices have been negotiated with a supplier, [Company B] issues a purchase order for the components to [Company A], and [Company A] then issues a purchase order to the supplier. Both purchase orders reflect the price negotiated by [Company B] with the suppliers.

[Company A] admits the imported components into its Foreign Trade Zone (“FTZ”) subzone in [XXX] in either privileged or non-privileged status. It takes title to the components at that time. [Company A] then assembles the components into chassis assemblies, which after assembly are shipped to [Company B’s] FTZ subzone as a zone-to-zone transfer. [Company B] then incorporates the chassis assemblies into finished vehicles. [Company A] reports a dutiable value for the components to [Company B], which reflects the purchase order price in effect at the time the goods were admitted into [Company A’s] zone and reported on the CBP Form 214.

After the zone-to-zone transfer, [Company B] pays [Company A] for the components, in addition to an amount for the assembly. The payment for the components will be based on the price reflected in the purchase order that is in effect between [Company A] and [Company B] at the time of the transfer. In some instances, the purchase order price at the time of the zone-to-zone transfer is different than the purchase order price that was effective at the time the components were admitted to [Company A’s] FTZ. This variance will be due to a price adjustment that went into effect after the components were exported to the United States. All shipments of components from [Company B’s] directed suppliers are subject to price adjustments within one year of the original purchase order for each part. To illustrate, [Company A] has provided a copy of a purchase order from [Company B] to [Company A], in which an order placed on June 3, 2009 for a certain part quotes a “firm price” that is noted to be valid from June 3, 2009 to December 31, 2009. On December 21, 2009, [Company B] amended the price for that component and with respect to that order, by issuing a change confirmation. The new, lower “firm price” was quoted to be valid from January 1, 2009 to March 31, 2009. It was further noted that “all other conditions remain unchanged.”

According to [Company A], the price adjustments occur when [Company B] determines that the price of the component that was paid by [Company A] to the [Company B]-directed supplier had to be adjusted upward or downward to reflect the “true costs” of the component based on various business conditions. The price paid by [Company B] to [Company A] will also be adjusted accordingly. Some adjustments may not become final until a year after the components have been imported.

[Company A] has also provided a copy of its “Standard Terms for Purchases of Goods and Services,” to which sellers of goods and services to [Company A] are required to assent when [Company A] places an order. The term that refers to invoicing, payment and price indicates that “[t]he price placed in this Order shall not be increased unless specifically authorized in writing by issuance of a revised Order signed by Buyer.”

[Company A] has previously served as the importer of record, but advised in the conference call that took place on February 25, 2010, that [Company B] was now the importer of record.

ISSUE:

Whether the post-importation price increases are included in the dutiable value of the imported components?

LAW AND ANALYSIS:

Pursuant to section 146.66(c)(3) of the Customs Regulations (19 CFR § 146.66(c)(3)), the operator of a zone that is transferring merchandise to another zone shall provide the operator of the destination zone with a statement of the zone value, dutiable value, quantity, description, unique identifier, and zone status (showing any changes of status after admission and whether the merchandise was manipulated so as to change its tariff classification) of all the merchandise in the shipment covered by the transportation entry.

Section 146.65(b)(2), Customs Regulations (19 CFR § 146.65(b)(2)), defines the dutiable value of merchandise in a FTZ as the price actually paid or payable for the merchandise in the transaction that caused the merchandise to be admitted to the zone, less certain shipping costs, and plus the statutory additions provided for in section 402(b)(1) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (19 U.S.C. § 1401a(b)(1)). The term “price actually paid or payable” is defined as “the total payment (whether direct or indirect…) 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).

The transactions that caused the merchandise to be admitted into [Company A’s] FTZ were the sales for export of the components by the foreign suppliers to [Company A]. It is [Company A’s] position that the price actually paid or payable is the price initially negotiated by [Company B] with the suppliers as reflected on [Company A’s] purchase orders to the various suppliers. The company argues that the Statement of Administrative Action (“SAA”) and CBP rulings preclude the inclusion of any post-importation price adjustments made by [Company B] in the dutiable value of the merchandise.

The SAA provides that “[c]hanges in the price actually paid or payable which are arrived at subsequent to the time of importation shall not be taken into account in determining a transaction value. This would apply to renegotiation, deferred quantity discounts, or rebates.” SAA, H.R. Doc. No. 153, (96 Cong., 1st Sess., pt. 2 (1979)), reprinted in Department of the Treasury, Customs Valuation under the Trade Agreements Act of 1979 at 46, (October 1981). [Company A] relies on Headquarters Ruling Letter (“HQ”) 542797, dated May 19, 1982 (TAA #48; C.S.D. 82-126) for the proposition that the adjustments are not included in the dutiable value of the components. HQ 542797 involved a situation in which a foreign manufacturer routinely granted its U.S. subsidiary a 20 percent discount. Due to currency fluctuations, the manufacturer agreed, before the goods were exported, to an additional 5 percent discount. Following the importation of merchandise on which the 25 percent discount was received, a further currency fluctuation resulted in the related companies agreeing that the additional 5 percent discount had been unwarranted. They consented to a retroactive adjustment, reverting to the original 20 percent discount. CBP held that the transaction value was represented by the price originally agreed upon by the parties, i.e., inclusive of the 25% discount, and was not affected by the subsequent retroactive adjustment. In so doing, CBP distinguished that case from a case where the parties agreed to an addition to the price paid or payable based on a condition subsequent such as a resale of the merchandise in the United States above a certain price, or where the parties otherwise contemplated a change in the contract price prior to exportation. (Emphasis added.)

[Company A’s] situation is distinguishable from the facts in HQ 542797. While the parties in that ruling never contemplated prior to exportation the need to adjust prices after importation, it is apparent that the prices that [Company B] has negotiated for the components imported by [Company A] are subject to change even at the time that [Company B] places an order for the components with [Company A]. This is evidenced by the representative [Company B] purchase and change orders to [Company A], which clearly show that a component price quoted in a particular purchase order is valid only for a specified time, and may change when that time expires. [Company A’s] own standard purchase agreement with its foreign component suppliers also raises the possibility that the prices may be increased. These factors indicate that all of the parties to these transactions – [Company B], [Company A] and the foreign suppliers – understand from the onset that price adjustments after importation may and do occur.

[Company A’s] transactions more closely resemble those described in HQ 547395, dated November 21, 2001. This was a protest involving post importation price increases due to increased costs of materials used in the manufacture of the imported products. Citing to Generra Sportswear Company v. United States, 905 F.2d 377, 380 (Ct. Int’l Trade 1990), this office held that the price increases were included in the price actually paid or payable for the imported merchandise. In Generra, the court determined that so long as a payment is made “to the seller in exchange for merchandise sold for export to the United States,” it is included in the price actually paid or payable. However, the payment will be excluded if the importer demonstrates that the payment was completely unrelated to the imported merchandise. See, Chrysler Corporation v. United States, 17 CIT 1049 (September 22, 1993).

In HQ 547395, the importer asserted that the additional payments were unrelated to the imported merchandise because the price increase occurred after importation. CBP found that not only were the additional payments directly related to the imported merchandise, but that the circumstances giving rise to the additional payments were considered in advance by the parties. Although the invoices submitted to CBP represented the original contract prices, the documentation submitted also showed that, prior to exportation, the parties contemplated price adjustments in the event of a change of circumstances, such as an increase in the cost of plastics and silicon. It was also noted that “the contract between the parties, although not written, is evidenced by the parties’ subsequent conduct.”

We find the analysis and conclusions reached in HQ 547395 to be applicable to [Company A’s] situation. Accordingly, all payments made by [Company A] to the foreign suppliers of the components, including those that result from post-importation price increases, are part of the price actually payable for the imported components. In calculating the dutiable value in accordance with 19 CFR § 146.65(b)(2), this amount would be reduced by any included international shipment and insurance costs and U.S. inland freight, and increased by any statutory additions. The appropriate mechanism for reporting the increases shall be arranged with the appropriate CBP officials at the port.

The post-importation price adjustments may result in a price decrease, in which case [Company A] will receive a refund in the amount of the price reduction. As a general rule, any rebate of, or other decrease in, the price actually paid or payable made or otherwise effected between the buyer and seller after the date of importation of the merchandise will be disregarded in determining the transaction value of the imported merchandise. 19 CFR § 152.103(a)(4). Certain post-importation price reductions may be taken into account, however, if the price was established in accordance with a formula. See, e.g., HQ 544615, dated September 11, 1991, and HQ 544364, dated October 9, 1990. [Company A] has not provided any information with respect to whether the price adjustments were made pursuant to a valid formula. Accordingly, any adjustments that result in a price decrease shall be disregarded.

HOLDING:

Post-importation price increases are part of the price actually paid or payable for the imported components, and accordingly, shall be taken into account in determining the dutiable value.

This decision should be mailed by your office to the party requesting Internal Advice no later than 60 days from the date of this letter. On that date, Regulations and Rulings will make the decision available to CPB personnel, and to the public on the CPB Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Monika R. Brenner
Chief,
Valuation and Special Programs Branch