VAL OT:RR:CTF:VS H224598 HkP
Port of Savannah
U.S. Customs and Border Protection
1 East Bay StreetSavannah, GA 31401
RE: Application for Further Review of Protest 1703-12-100350; Method of Appraisement; Related Parties
Dear Port Director:
This is in response to the Application for Further Review of Protest 1703-12-100350, filed on behalf of Sipcam Agro USA, Inc. (“Sipcam”) on April 11, 2012. At issue is the proper method of appraisement of a chemical imported from China. In reaching our decision, we have taken into account a teleconference held with counsel on September 12, 2014, and additional information submitted by counsel on September 12, and 30, 2014.
The merchandise at issue is chlorothalonil, the active ingredient in some fungicides, imported in powder form. Sipcam, the importer, processes chlorothalonil into a finished fungicide in the United States. Depending on the level of purity of chlorothalonil, the finished product is sold in the United States or in Canada. The importer purchases chlorothalonil from its Italian parent company, Oxon Italia (“Oxon”), which purchases the chemical from a Chinese manufacturer, Jiangyin Suli Chemical Co., Ltd. (“Sulichem”). Sipcam, Sulichem, and Oxon are members of the Sipcam-Oxon Group, an Italian multinational group of companies. Oxon “controls” Sipcam, owns a 30% share of Sulichem, and has the right to nominate two of Sulichem’s five directors.
Pursuant to a March 2009 Chlorothalonil Supply Agreement between Oxon (the parent company and foreign reseller/middleman), and Sulichem (the Chinese manufacturer), Sulichem supplies five grades of chlorothalonil to Oxon, two of which are at issue and described below. The chlorothanil is supplied packaged in 500 kilogram (“kg”) or 750 kg bags packed on pallets that hold 1,000 or 1,500 kgs. per pallet.
Oxon is Sulichem’s exclusive distributor of chlorothalonil in North America and other specified territories, and Sulichem may not directly or indirectly sell chlorothalonil in North America or other exclusive territories except through Oxon. Sipcam, the importer, is Sulichem’s U.S. agent for the purpose of reporting product volumes and for the maintenance of a U.S. Environmental Protection Agency (“EPA”) Establishment Number.
By the terms of the Supply Agreement, Oxon may place orders directly with Sulichem or through an agent but is required to use an agent to provide Sulichem with Oxon’s yearly, non-binding purchase plan that outlines volume requirements and a receiving schedule for the succeeding contract year. Sulichem’s acceptance of the order must be made through the same agent that placed Oxon’s order. Oxon has the right to appoint an exclusive agent in China for the main function of coordinating logistic arrangements of the sales activity. The agent appointed by Oxon is also required to supervise both Oxon and Sulichem to ensure that each fulfils its obligations under the agreement, inform each party of the other’s requirements, find and propose to Oxon reliable traders, and organize a yearly meeting between the parties to analyze the previous year including volume purchased, quality of the products, packing and other issues. According to the Supply Agreement, Oxon’s relationship with the agent is regulated by a separate agreement, a copy of which was not provided. Counsel informed this office that Oxon used a buying agent in China until March 2011.
The Agreement requires Oxon to find a “Trader”, an Import and Export Corporation, legally qualified and registered in China, which must be accepted by Sulichem in writing. All the expenses and charges of the Trader, including commission fees and expenses related to exportation, are to be paid by Oxon. The duties of the Trader and the amount of commission and fees paid to the Trader by Oxon are not specified. Counsel informed this office that a Trader was not involved in any of the transactions underlying the protested entries.
Under the Supply Agreement, all sales are on a CIF (Cost, Insurance, Freight) basis (except for one product not at issue sold on a Free on Board (“FOB”) basis) and are based on the price list included as an exhibit to the agreement, with payment due within 90 days of the date on the bill of lading. The “pricing principle” in the exhibit provides, in relevant part, that Oxon shall be provided with the most preferential price, which shall be the current market price at the time each order is placed with an additional discount ranging from RMB 500-2,000 per ton (USD 0.05 - 2.00 per kg.), the exact discount to be decided for each product at the time of order depending on production and the market situation. Either party can request that prices be renegotiated. The agreement further provides that, if at any time during the agreement, Sulichem sells the products to a third party in a non-exclusive territory at a price or on terms lower or more favorable than those provided to Oxon under the Agreement, Sulichem is required to offer the lower price or more favorable terms to Oxon for the remainder of the contract. Counsel states that Oxon did not benefit from the discount and third party pricing parity provisions during the relevant time.
Two paperless entries, made on April 18, and June 18, 2011, are at issue. Chlorothalonil entered in April 2011 had an HBC (stabilizer) content of not more than 10 parts per million (“ppm”), and had a minimum purity of 98.5% (for purposes of this decision, “Product 1”). The entered value, USD 5.40 per kilogram, CIF Savannah, was based on the invoice issued by the foreign reseller, Oxon, to the importer, Sipcam. The June 2011 entry of chlorothalonil had an HBC content of not more than 40 ppm, and had a minimum purity of 98% (for purposes of this decision, “Product 2”). The entered value, USD 4.45/kg, CIF Savannah, was also based on the foreign reseller’s invoice to the importer. The entry packages subsequently submitted in support of the entries included invoices from the reseller to the importer, freight and insurance invoices, packing lists, certificates of analysis, Chinese export documents, and bills of lading.
On July 28, and September 2, 2011, the Port issued Requests for Information (CBP Form 28s) to the importer on the June and April entries, respectively, requesting in relevant part, information on the relationship between the importer and the reseller of the merchandise, and the costs and expenses incurred in the transactions between the parties.
On September 2, and 29, 2011, the Port issued Notices of Action (CBP Form 29s) to the importer for the June and April entries, respectively, proposing to advance the value of the merchandise in the absence of the requested information regarding its valuation. The value proposed for both entries was USD 13.48/kg, less ocean freight and insurance, plus 10% for packing charges.
On September 23, 2011, the Port received a response from the importer’s broker, dated August 22, 2011, stating that the importer was related to the reseller/middleman, Oxon, but not to the manufacturer, Sulichem, and that the importer did not know the prices paid to the manufacturer by Oxon. The broker also stated, in relevant part, that freight and insurance charges were deducted from the CIF price based on documentation from the manufacturer, packing charges were not included in the CIF invoice value, and that no commissions, proceeds, assists or royalties were paid on the imported products.
According to the Port, importer’s counsel later claimed in correspondence not a part of the record that the merchandise should be appraised using transaction value, based on the price between the Chinese manufacturer and the foreign reseller/middleman, Oxon, i.e., the “first sale.” Oxon paid the Chinese manufacturer USD 4.85/kg, CIF Savannah, for Product 1 entered in April 2011, and USD 4.08/kg, CIF Savannah, for Product 2 entered in June 2011. Product 1 and Product 2 were purchased by Oxon in February 2011. As previously stated, the prices declared at entry were the prices paid by the importer, Sipcam, to Oxon.
On September 27, 2011, concerning the June entry, the Port notified the importer that the information it had provided was insufficient to substantiate that the relationship did not influence the first sale value of Product 2, and that the merchandise would be appraised at USD 13.48/kg, less ocean freight and insurance, plus 10% for packing costs. Likewise, on October 26, 2011, the Port advised the importer that CBP was unable to determine the validity of the importer’s first sale claim for the April entry of Product 1. In the October notice, the Port also noted that the importer had indicated in entry documents that the reseller and the importer were not related. The Port advised the importer that CBP would appraise Product 1 at USD 13.48/kg, less ocean freight and insurance, but would not add 10% for packing charges as had been proposed because of the information received by the Port on September 23rd, 2011. The Port also advised the importer that Product 1 was being appraised “consistent with the values for shipments of the same HTS number during a similar time period.” The June entry was liquidated on October 14, 2011, and the April entry was liquidated on December 2, 2011. The liquidated value for both entries was USD 13.48/kg, less ocean freight and insurance.
On April 11, 2012, the importer timely protested the actions taken by the Port in relation to both entries and requested further review of the protest decision. In support of the protest, Counsel provided the following documents, among others:
The Chlorothalonil Supply Agreement between Sulichem and Oxon.
- Copies of April, May, and June 2011 issues of Fungicides China News, which list the average monthly FOB Shanghai prices for chlorothalonil (Product 2) as: March 2011 - USD 4.158/kg; April 2011 – USD 4.239/kg; May 2011 – USD 4.276/kg; and, June 2011 – USD 4.353/kg.
- A copy of Sulichem’s official contract list for 2011, showing all sales of chlorothalonil by the manufacturer for the year. In the month in which the imported merchandise was sold by Sulichem to Oxon, February 2011, there were three USD CIF sales of Product 2 to unrelated parties, at either USD 3.970/kg or USD 3.850/kg. The CIF destination ports were not listed. There was one USD FOB sale to an unrelated party at USD 3.930/kg. The only USD Product 1 sales in 2011 were to Oxon at USD 4.85/kg;
- CIF Savannah invoices issued by the manufacturer to Oxon for Product 1 at USD 4.85/kg, and Product 2 at USD 4.08/kg. The prices were broken down into FOB values and freight and insurance charges;
- Bank records showing payment by Oxon of Sulichem’s invoices;
- A series of email exchanges during 2011 between Oxon and Sulichem. In February 2011, the price was quoted for Product 1 was USD 4.85/kg, CIF Savannah. In September 2011, the price quoted was USD 4.90/kg, CIF Savannah;
- Summaries of U.S. importations of fungicides for March 2011 from PIERS, a database of U.S. import and export activity conducted by vessel that is based on bills of lading, and from the U.S. International Trade Commission (“ITC”) website. PIERS data shows that for March 2011 the value of fungicides classified in subheading 2629.90.2100 (where chlorothalonil is classified) ranged from USD 4.25/kg to 5.84/kg, and for May 2011 ranged between USD 4.32/kg and USD 5.84/kg. ITC trade statistics for the subheading show values of USD 4.035/kg for March 2011 and USD 4.357/kg for May 2011. Importer names, chemical names, and purity levels are not specified in the PIERS or ITC data.
A Profit and Loss spreadsheet for Sulichem for 2011.
A deductive value calculation sheet.
Counsel stated in the Protest memorandum that Oxon sets its prices in order to retain a gross margin of 10% for high volume commodities such as chlorothalonil, and that ten percent is the minimum markup sufficient to cover Oxon’s costs and generate a profit.
According to the Customs Protest and Summons Information Report (CBP Form 6445A), the liquidated value of USD 13.49/kg, less freight and insurance, was arrived at using 19 U.S.C. 1401a(f), the “fallback” method of appraisement. The Port rejected the transaction value declared by the importer on entry because the importer failed to provide clear, complete and convincing evidence that the relationship between the reseller/middleman, Oxon, and the importer, Sipcam, did not influence the price. The Port noted that the importer had provided additional documentation on the price paid by Oxon to the manufacturer, the first sale, as part of the Protest that was not available at the time of liquidation, but that some of the documents were not in English, and that certain references to an agent and/or trader in the English documents raised additional questions.
In subsequent correspondence with this office, the Port stated that it did not consider the FOB sales data from Fungicides China News because it did not contain information on the countries to which chorothalonil was shipped. For the same reason, the Port felt that it was not able to rely on the CIF sales data contained in Sulichem’s official contract list for 2011. Concerning the transaction value of identical or similar merchandise, the Port did not rely on the ITC trade data because that information did not indicate the percentage of importations attributable to the importer, Sipcam. The Port explained that if, for example, the importer’s own importations accounted for 90% of the values then, effectively, the disputed values would be verified using the same disputed values, that is, the importer’s declared values. Further, the Port explained that CBP does not rely on PIERS data because it is gathered from bills of lading values, which are not necessarily the same as previously accepted customs values, that is, information in CBP’s databases. In addition, the Port found no non-related party entries of Product 1 or 2 in March, April, or May 2011, and that none of the related party entries made during that time were examined or were appraised using deductive or computed value. The Port also felt that appraising the merchandise using deductive value was not appropriate because there was insufficient information to support that method of appraisement. Finally, the Port stated that it could not use computed value to appraise the merchandise as there was no way for the Port to determine whether the figures submitted by the importer were determined in accordance with Generally Accepted Accounting Principles. As no other method of appraisement was available, the Port appraised the merchandise using the fallback method of appraisement.
Counsel informed this office that the global specification for chlorothalonil is 98% purity, that is, Product 2, and there are no industry publications listing the price of Product 1. Counsel explained that because Product 1 is a more pure product than Product 2, Product 1 is sold by the manufacturer at a higher price. In addition, Product 1 is incorporated into a product sold in Canada whereas Product 2 is incorporated into a product sold in the United States.
At the request of this office, Counsel provided a copy of the February 2011 issue of Fungicide China News to this office, which listed the FOB Shanghai price of Product 2 as USD 4.785/kg. On September 12, 2014, counsel provided a copy of Oxon’s profit and loss statement for 2010 and 2011, which showed that Oxon’s net profit for 2011 was [5.2]%. On September 30, 2014, counsel provided information on Sulichem’s cost of production for Product 1 and Product 2, which indicated that the cost to produce Product 1 was 19% higher than to produce Product 2. Counsel explained that this was due to a higher cost of one raw material in Product 1 as well as additional energy and labor costs related to the longer processing time to produce Product 1.
Whether the imported merchandise may be appraised based on the related party transaction between the manufacturer and the foreign seller/middleman.
LAW AND ANALYSIS:
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 enumerated statutory additions.
Bona Fide Sale
The importer entered the products based on the price which it paid to the foreign reseller, Oxon. Counsel now claims that the products should be valued based on the price paid by Oxon to the Chinese manufacturer, Sulichem.
In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992), the U.S. Court of Appeals for the Federal Circuit reviewed the standard for transaction value when there is more than one sale which may be considered as being a sale for exportation to the United States. The court ruled that for imported merchandise to be appraised on the basis of the manufacturer-middleman sale, the transaction must be conducted at arm’s length and the merchandise must be clearly destined for exportation to the United States at the time of the sale. The court reaffirmed the principle established in E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that the manufacturer’s price, rather than the middleman’s price, is valid so long as the transaction between the manufacturer and the middleman falls within the statutory provision for valuation. In upholding the McAfee standard the court stated that in a three-tiered distribution system, “the manufacturer’s price constitutes a viable transaction value when the goods are clearly destined for export to the United States and when the manufacturer and the middleman deal with each other at arm’s length, in the absence of any non-market influences that affect the legitimacy of the sales price.”
As a general rule, CBP presumes that the price paid by the importer is the appropriate basis for determining transaction value, and the burden is on the importer to rebut this presumption. See Treasury Decision (“T.D.”) 96-87, 30 Cust. Bull. 52/1 (January 2, 1997). To rebut this presumption, the importer must, in accordance with the court’s standard in Nissho, provide evidence that at the time the middleman purchased, or contracted to purchase, the imported merchandise, the goods were clearly destined for exportation to the United States and that the manufacturer and middleman dealt with each other at arm’s length. This documentary evidence must satisfy the requirements set forth in Nissho Iwai.
CBP stated in T.D. 96-87 that it is looking for “a complete paper trail of the imported merchandise showing the structure of the entire transaction.” In addition, to establish whether the transaction is “at arm’s length,” the ruling request must state the relationship, if any, of the parties.
In order for transaction value to be used as a method of appraisement, it is essential that there is a sale between the parties. In a multi-tiered transaction, there must be a bona fide sale between the middleman and the manufacturer in order to be able to use the first sale as a basis of appraisement. The first issue presented in this case is whether the protestant has demonstrated that there is a bona fide sale between the reseller/middleman, Oxon, and the foreign manufacturer.
In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed.Cir. 1999), the Court of Appeals for the Federal Circuit found that the term “sold” for purposes of 19 U.S.C. § 1401a(b)(1) means a transfer of title from one party to another for consideration (citing J.L. Wood v. United States, 62 CCPA, 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). No single factor is decisive in determining whether a bona fide sale has occurred. See Headquarters Ruling Letter (“HQ”) 548239, dated June 5, 2003. CBP stated in HQ 546192, dated February 23, 1996, that “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.”
CBP will consider such factors as to whether the purported buyer assumed the risk of loss for, and acquired title to, the imported merchandise. Evidence to establish that consideration has passed includes payment by check, bank transfer, or payment by any other commercially acceptable means. In addition, CBP may examine whether the purported buyer paid for the goods, and whether, in general, the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as buyer and seller. See HQ H005222, dated June 13, 2007.
In this case, the terms of sale between the foreign reseller/middleman, Oxon, and the U.S. buyer/importer, Sipcam, and between the manufacturer, Sulichem, and the foreign reseller are the same - CIF Savannah. Under CIF terms of sale, the seller’s risk of loss and cost ends once the goods pass the ship’s rail at the named destination port. Oxon never had physical possession of the goods as the manufacturer shipped them directly to the importer in accordance with the terms of Oxon’s purchase orders.
Simultaneous or flash transfer of title, where the middleman and the buyer obtain title at virtually the same moment, as evidenced by both parties having the same terms of sale (e.g. CIF Savannah for both parties), may cause CBP to more closely scrutinize a transaction. By itself, flash transfer of title does not equate to a failure to show a bona fide sale, (for instance, see HQ W563605, dated November 19, 2009), but this factor along with who carries the risk of loss are considered by CBP in its determination of whether or not a bona fide sale has occurred. In HQ W563605, there was a simultaneous transfer of title and a lack of a profit on the alleged sale. All the parties were unrelated, and a review of all the transaction documents supported the finding of a bona fide sale. A significant difference between this case and HQ W563605 is that the foreign seller, Oxon, is related to the Chinese manufacturer, Sulichem, as well as to the U.S. buyer, Sipcam (see below).
In HQ H016966, dated December 17, 2007, CBP stated that “[w]henever there is a purported series of sales, and the same terms of sale are used in both transactions, there is a concern that the middleman obtains risk of loss and title only momentarily or never at all, and thus has nothing to sell to the ultimate purchaser. In such situations the middleman may be a buying or selling agent rather than an independent buyer/seller and the sale will be said to occur between the party identified as the first seller and the ultimate U.S. purchaser.” In HQ H016966, CBP held that the use of identical terms of sale suggested that there was only one sale. Based on that and other factors in HQ H016966, CBP concluded that there was not a bona fide sale between the manufacturer and the middleman.
In HQ 546192, dated February 23, 1996, CBP also considered whether the buyer provided or could provide instructions to the seller, was free to sell the transferred item at any price he or she desired, selected or could select its own downstream customers without consulting with the seller, and could order the imported merchandise and have it delivered for its own inventory.
We have reviewed the record in this case, in particular, the Supply Agreement between the Chinese manufacturer and Oxon, purchase orders from Oxon to the manufacturer and the reciprocating invoices from the manufacturer, bank records of payments of invoiced amounts by Oxon to the manufacturer, the Chinese manufacturer’s official contract list of sales of chlorothalonil for 2011, and email exchanges between the manufacturer and Oxon in which the foreign reseller/ middleman attempted to renegotiate prices. Based on our review, we conclude that the sales between the manufacturer and Oxon, the foreign reseller, were legitimate, even though Oxon never took physical possession of the goods. Oxon entered into the supply agreement on its own behalf and is listed as the customer in Sulichem’s sales records. Moreover, Oxon is the exclusive distributor of Sulichem’s products in the U.S. and, accordingly, the importer could not buy Sulichem’s products for use in the U.S. but had to obtain them from Oxon.
Based on the record, we conclude that there was a bona fide sale between Sulichem and Oxon.
Furthermore, documents were submitted that indicate that the products were clearly destined for exportation to the United States at the time of sale, as required by 19 U.S.C. § 1401a. In Treasury Decision (T.D.) 96-87, dated January 2, 1997, CBP advised that the importer must provide a description of the roles of the parties involved and must supply relevant documentation addressing each transaction that was involved in the exportation of the merchandise to the United States. The documents may include, but are not limited to purchase orders, invoices, proof of payment, contracts, and any additional documents (e.g. correspondence) that establishes how the parties deal with one another. The objective is to provide CBP with "a complete paper trail of the imported merchandise showing the structure of the entire transaction." T.D. 96-87 further provides that the importer must also inform CBP of any statutory additions and their amounts. In this case, the Bills of Lading and other shipping documents show that the products were shipped directly from China to the United States, and the Certificates of Origin completed by Sulichem and the Fumigation/Disinfection Certificates reflecting inspection of the products before they left China also indicate that the goods were destined for the United States when they left China.
Relationship between Sulichem and Oxon
Under 19 U.S.C. § 1401a(b)(2)(A)(iv), transaction value is to be used only if the buyer and seller are unrelated or, if they are related, their transaction value is considered "acceptable". 19 U.S.C. §1401a(b)(2)(B) provides:
The transaction value between a related buyer and seller is acceptable for the purposes of this subsection if an examination of the circumstances of the sale of the imported merchandise indicates that the relationship between such buyer and seller did not influence the price actually paid or payable; or if the transaction value closely approximates –
The transaction value of identical merchandise, or of similar merchandise, in sales to unrelated buyers in the United States; or
The deductive or computed value for identical or similar merchandise;
But only if the value referred to in clause (i) or (ii) that is used for comparison relates to merchandise that was exported to the United States at or about the same time as the imported merchandise.
See also 19 C.F.R. 152.103(j)(2).
“Related parties” are defined in 19 U.S.C. 1401a(g)(1), which provides:
For purposes of this section, the persons specified in the following subparagraphs shall be treated as persons who are related:
Members of the same family, including brothers and sisters (whether by whole or half
blood), spouse, ancestors, and lineal descendants.
Any officer or director of an organization and such organization.
An officer or director of an organization and an officer or director of another organization, if each individual is also an officer or director in the other organization.
Employer and employee.
Any person directly or indirectly owning, controlling, or holding with power to vote, 5 percent or more of the outstanding voting stock or shares of any organization and such organization.
Two or more persons directly or indirectly controlling, controlled by, or under common control with, any person.
According to the information submitted in support of the Protest, Oxon controls the importer, Sipcam, and owns a 30% share of the Chinese manufacturer, Sulichem, and has the right to nominate two of Sulichem’s five directors. Under the Customs Valuation Laws, any person directly or indirectly owning, controlling, or holding with power to vote, 5 percent or more of the outstanding voting stock or shares of any organization is related to such organization. See 19 U.S.C. § 1401a(g)(1)(F). In addition, two or more persons that are directly or indirectly controlled by or under common control with any person are related. See 19 U.S.C. § 1401a(g)(1)(G). See also HQ H169975 (Jan. 20, 2012), and HQ 547608 (Feb. 21, 2002). Therefore, because Oxon controls Sipcam, Oxon and Sipcam are related. Further, because the manufacturer, Sulichem, and the importer, Sipcam, are directly or indirectly controlled by the foreign reseller, Oxon, we find that all the parties are related to each other.
Circumstances of the Sale
While the fact that the buyer and seller are related is not in itself grounds for regarding transaction value as unacceptable, where questions are raised about the acceptability of the price so that the port is unable to accept transaction value without further inquiry, the parties will be given the opportunity to supply such further detailed information as may be necessary to support the use of transaction value.
Under the circumstances of sale approach, the transaction value between a related buyer and seller is acceptable if an examination of the circumstances of the sale indicates that although related, their relationship did not influence the price actually paid or payable. The CBP Regulations specified in 19 C.F.R. Part 152 provide illustrative examples of how to determine if the relationship between the buyer and the seller influences the price. In this respect, CBP will examine the manner in which the buyer and seller organize their commercial relations and the way in which the price in question was derived in order to determine whether the relationship influenced the price. If it can be shown that the price was settled in a manner consistent with the normal pricing practices of the industry in question, or with the way in which the seller settles prices with unrelated buyers, this will demonstrate that the price has not been influenced by the relationship. See 19 C.F.R. § 152.103(l)(1)(i)-(ii). In addition, CBP will consider the price not to have been influenced if the price was adequate to ensure recovery of all costs plus a profit equivalent to the firm’s overall profit realized over a representative period of time. 19 C.F.R. § 152.103(l)(1)(iii). These are examples that illustrate that the relationship has not influenced the price, but other factors may be relevant as well.
i. Sales to Unrelated Buyers
Sulichem sold Product 1 to Oxon for USD 4.85/kg, CIF Savannah. Unlike Product 2, the related manufacturer did not sell Product 1 to any party other than Oxon during February 2011. In addition, due to the higher purity level of Product 1, there is no industry published price for Product 1.
Counsel argues that the emails between Sulichem and Oxon, described in the FACTS section above, are evidence of negotiations between the parties on the price of Product 1 and that the price was determined based on an arm’s-length transaction.
We have considered counsel’s arguments and find that the emails do not show how the price of USD 4.85/kg was arrived at between the parties. The emails merely show that Sulichem was unwilling to grant a discount on the price of USD 4.85/kg that it quoted to Oxon.
Due to a lack of information, we are unable to determine whether the price at which Product 1 was sold to Oxon was consistent with the way in which the seller determined prices for unrelated buyers or sold to unrelated buyers.
The manufacturer, Sulichem, sold Product 2 to its related reseller, Oxon, for USD 4.08/kg., CIF Savannah, in 2011. According to its sales data for 2011, the manufacturer also made three USD CIF sales of Product 2 to unrelated parties, for either USD 3.970/kg or USD 3.850/kg. CIF sales include the costs of international freight and insurance. However, the destination ports for the unrelated party sales are not named and their freight and insurance costs are unknown. Consequently, we are unable to determine whether the CIF sales of Product 2 to unrelated parties were actually at a higher price than charged to Oxon. We find, therefore, that the USD CIF unrelated party sales cannot be compared with the CIF Savannah sales at issue.
Nonetheless, the manufacturer’s invoices to Oxon for Product 2 separately list the costs of international freight and insurance (which are supported by invoices from the shipper and insurance company) as well as the FOB value of the product. By subtracting the cost of international freight and insurance from the CIF Savannah price we are able to calculate that the FOB price for Product 2 was USD 3.87/kg, which was also the FOB value listed on the invoice. According to the manufacturer’s sales records, in February 2011 Sulichem made one FOB sale of Product 2 to an unrelated party for USD 3.930/kg. We note that Fungicides China News for February 2011 listed the FOB Shanghai price for Product 2 as USD 4.785/kg.
In this case, the price charged by the related Chinese manufacturer to the related foreign reseller for Product 2 was within one percent (1%) of the price charged to an unrelated buyer, and that both prices were substantially lower than the price listed in the industry publication. Accordingly, we find that the price at which the manufacturer sold to its related reseller, Oxon, was consistent with the price at which the manufacturer sold to unrelated buyers, and that their relationship did not influence the price of Product 2.
ii. All Costs Plus a Profit – Product 1
Counsel argues that the price charged by the Chinese manufacturer, Sulichem, to the foreign seller, Oxon, was adequate to ensure recovery of all Sulichem’s costs plus a profit and so satisfies the circumstances of the sale test.
The all costs plus a profit test is detailed in 19 CFR § 152.103(l)(1)(iii), which states:
If it is shown that the price is adequate to ensure recovery of all costs plus a profit which is equivalent to the firm’s overall profit realized over a representative period of time (e.g., on an annual basis), in sales of merchandise of the same class or kind, this would demonstrate that the price has not been influenced.
In HQ H106603, dated July 25, 2011, CBP explained:
A very important consideration in the all costs plus a profit example is the “firm’s” overall profit. In applying the all costs plus a profit test, CBP normally considers the “firm’s” overall profit to be the profit of the parent company. Thus, if the seller of the imported goods is a subsidiary of the parent company, the price must be adequate to ensure recovery of all the seller’s costs plus a profit that is equivalent to the parent company’s overall profit. See HQ 546998, dated January 19, 2000. The regulations do not give us the definition of “equivalent” profit; however, if the profit of the seller is equal to or higher on the U.S. imports than the firm’s overall profit, the purchase price would not be artificially low for Custom’s purposes.
In this case, the manufacturer only makes one product, chlorothalonil. According to the spreadsheet of Sulichem’s profit and loss for 2011, Sulichem made a profit of 5.2% on its sales of chlorothalonil. Oxon’s net profit for 2011 was 5.4%. In order to meet the requirements of the all costs plus a profit test, the seller’s (Sulichem’s) profit must be equal to or higher than Oxon’s overall profit over a representative period of time. See HQ H215658, dated June 11, 2012. As this was not the case, the all costs plus a profit test is not satisfied.
Test Values – Product 1
“Test values” refer to values previously determined pursuant to actual appraisements of imported merchandise. Under the test values method, related party transaction values may be acceptable if they closely approximate previously accepted values of either: 1) identical or similar merchandise in sales to unrelated buyers in the United States; or, 2) the deductive or computed value of identical or similar merchandise. See 19 U.S.C. § 1401a(b)(2)(B). In applying the values used for comparison purposes, based on sufficient information, account must be made of differences between the sales involved in, inter alia, costs, commissions, values, fees and proceeds as described in 19 U.S.C. § 1401a(b)(1)(A) through (E), i.e., statutory additions to the price paid or payable. See 19 U.S.C. § 1401a(b)(2)(C).
No unrelated party sales exist for Product 1. In addition, the Port found that there were no non-related party entries of merchandise identical or similar to Products 1 and 2 in March, April, or May 2011, and that none of the related party entries of identical or similar merchandise made during that time were examined or were appraised using deductive or computed value (methods discussed below).
Method of Appraisement – Product 1
When transaction value is not available as an appraisement method, the remaining methods of appraisement set forth in 19 U.S.C. § 1401a must be applied in sequential order. The alternative methods of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)); deductive value (19 U.S.C. § 1401a(d)); computed value (19 U.S.C. § 1401a(e)); and the "fallback" method (19 U.S.C. § 1401a(f)).
The transaction value of identical or similar merchandise is based on sales, at the same commercial level and in substantially the same quantity of merchandise exported to the United States at or about the same time as the merchandise being appraised. See 19 U.S.C. § 1401a(c).
Counsel submitted data from PIERS and the ITC showing the value of fungicides of subheading 2926.90.2100, HTSUS, where chlorothalonil is classified, imported from China between March and July 2011. Values are listed as being between USD 4.035/kg and 4.419/kg.
As found by the Port, ITC statistics cannot be relied upon because they do not indicate the portion of sales attributable to the importer, Sipcam. There is, therefore, no way to ensure that the importations at issue would not be valued using the importer’s own importations. Moreover, we note that the information provided does not specify the particular fungicides imported and does not distinguish between grades of particular fungicides. Further, CBP does not rely on PIERS data because it is gathered from bills of lading values, which are not necessarily the same as previously accepted customs values, that is, information in CBP’s databases. In addition, there were no unrelated party entries of the subject merchandise in March, April, or May 2011, periods proximate in time to the entries, and none of the related party entries made during that time period were examined by CBP. Consequently, Product 1 may not be appraised based on the value of identical or similar merchandise imported from China during the relevant time period.
Under the deductive value method, merchandise is appraised on the basis of the price at which it 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, on or before the close of the 90th day of importation. See 19 U.S.C. § 1401a(d)(2)(A)(i),(ii). If the merchandise was not sold in the condition as imported and not sold before the close of the 90th day after the date of importation, the price is the unit price at which the merchandise being appraised, after further processing, is sold in the greatest aggregate quantity before the 180th day after the date of importation. Id. at (d)(2)(A)(iii). The price determined using deductive value is subject to certain enumerated deductions including commissions, and in the case of further processed goods, the value added by post-importation processing. See 19 U.S.C. § 1401a(d) (3).
In this case, Product 1 is not sold in its imported condition but is incorporated into a finished good that is sold in Canada and not in the United States. Deductive value is not available as a method of appraisement for Product 1.
Under the computed value method, merchandise is appraised on the basis of the material and the 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 as the imported merchandise that are made by the producers in the exporting country for export to the U.S., and the value of any assists and packing costs. See 19 U.S.C. § 1401a(e).
Information on the manufacturer’s production costs and profit were submitted, broken down by product, that is, by purity levels. However, there is no information in the record on the profit and general expenses of Chinese producers that export the same class or kind of product to the U.S. Without information on the profit and general expenses of producers in China of the same class or kind of product, the computed value method is unavailable as an appraisement method.
When the value of imported merchandise cannot be determined under the methods set forth in 19 U.S.C. § 1401a(b)-(e), it may be appraised on the basis of a value derived from one of those methods, reasonably adjusted to the extent necessary to arrive at a value. This is known as the “fallback” valuation method. Certain limitations exist under this method, however. For example, merchandise may not be appraised on the basis of the price in the domestic market of the country of export, the selling price in the United States of merchandise produced in the U.S., minimum values, or arbitrary or fictitious values. See 19 U.S.C. § 1401a(f); CBP Regulations, Part 152, Section 152.108 (19 C.F.R. § 152.108).
In this case, we have information on the FOB Shanghai price of Product 2, and that the cost to produce Product 1 is 19% more than the cost to produce Product 2. Accordingly, in order to determine the appraised value of Product 1, we find that it would be reasonable in these circumstances to upwardly adjust the FOB value of Product 2 by 19% to account for the difference in the production costs of Products 1 and 2, in order to determine the value of Product 1.
Product 1 should be appraised using the fallback method. Specifically, the appraised value of Product 1 should be determined by taking the FOB value of Product 2 and adding 19 percent to account for the additional costs to produce Product 1.
Product 2 should be appraised using transaction value, based on the price at which the manufacturer sold to its related reseller, Oxon, as we find that the circumstances of the sale shows that the relationship did not influence the price.
The protest should be allowed as it relates to Product 2 and denied as it relates to Product 1, although the value of Product 1 should be adjusted as described. In accordance with the Protest/Petition Processing Handbook (CIS HB, December 2007), you are to mail this decision together with the Customs Form 19 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 the mailing of the decision. Sixty days from the date of the decision the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel and to the public at www.cbp.gov by means of the Freedom of Information Act and other methods of public distribution.
Myles B. Harmon, Director
Commercial and Trade Facilitation Division