OT:RR:CTF:VS H329588 AP
Ms. Charlye Hebert
Vice President, Customs Brokerage
Bertling Logistics, Inc.
19054 Kenswick Drive
Humble, TX 77338
RE: Dutiability of Certain “Force Majeure” Charges
Dear Ms. Hebert:
This is in response to your January 9, 2023 request for a binding ruling, on behalf of your client KZJV LLC (“importer” or “buyer”), regarding whether certain additional costs described as “force majeure” charges are dutiable as part of the transaction value of the merchandise.
The buyer/importer is importing pipe-in-pipe assemblies (“PIP assemblies”) for use in a liquefaction plant in the United States owned by a third party. The PIP assemblies consist of three pipes that transfer liquefied natural gas from the liquified natural gas (“LNG”) storage tanks to the LNG loading arms. The importer purchases the PIP assemblies from an unrelated seller/supplier in France under the Incoterms Free Carrier (“FCA”) Louveciennes, France. The importer serves as an engineering, procurement and construction company as well as the importer of record for the merchandise.
The submitted purchase order for the PIP assemblies was placed on September 24, 2021, and was governed by the terms and conditions of purchase agreed between the parties on September 16, 2021. According to the terms and conditions, the guaranteed delivery dates are from December 24, 2022 through February 24, 2023. The agreed prices are firm and are not subject to escalation except for a certain pricing variation of quantities as agreed by the buyer and the seller. Invoice payments are due 45 days from the invoice receipt. The seller has agreed to “take cognizance” of existing and potential export restrictions upon importation into the United States of equipment/components containing material that is under embargo.
The importer informs that in March 2022, the war in Ukraine affected the sourcing and transportation of the materials to the seller. As a result, the seller imposed additional “force majeure” charges on the material through a change order as it was unable to fulfill the signed purchase agreement with the importer. The importer states that the additional charges amounted to 9 percent of the cargo value based on the original purchase order. The supplied amended packing list and shipping invoice list additional charges of 9 percent or $9,340.
You describe the additional “force majeure” charges as follows:
Acceleration of stainless steel production: acceleration of delivery of stainless steel plates for outer pipe production.
Acceleration of stainless steel coupons delivery for welding qualification: due to disruption of supply chain and increase in pipe procurement lead time, the supplier recommended that readily available non-project pipe be purchased to perform all stainless steel welding procedure qualification. This would be an additional cost.
Escalation purchase order language update: changes to the purchase order language to allow for payment of escalation due to exceptional market price increase.
Escalation cost impact on procurement of insulation: compensate supplier for cost impacts incurred to mitigate impacts of COVID and engineering delays on procurement of Izoflex insulation.
Escalation cost impact on procurement of stainless-steel pipes and bends: compensate supplier for cost impact incurred to immediately place material order for stainless steel pipes and bends and de-risk project schedule despite the massive material price increase due to Russo-Ukrainian war.
Escalation cost and engineering change impacts to procurement of Inconel materials: compensate supplier for cost impacts incurred to mitigate impacts of Russian-Ukrainian war; compensate supplier for cost impact incurred for procurement of additional materials due to buyer induced changes; compensate supplier for cost impacts incurred due to engineering delays impact to procurement scope.
Escalation cost and engineering changes impact to procurement of bulkhead forgings: compensate supplier for cost impacts incurred to mitigate impacts of Russo-Ukrainian war; compensate supplier for cost impact incurred for procurement of additional materials due to buyer induced changes.
Whether the additional “force majeure” charges paid or payable by the importer to the seller are dutiable as part of the transaction value of the merchandise.
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 preferred method of appraisement is transaction value, which is defined as “the price actually paid or payable for the merchandise when sold for exportation to the United States,” plus amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. 19 U.S.C. § 1401a(b)(1). For purposes of this ruling we presume that transaction value is the appropriate appraisement method.
The term “price actually paid or payable” is defined as:
[T]he total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) 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)(A).
The transaction value of imported merchandise does not include any of the following if identified separately from the price paid or payable:
(3) (A)Any reasonable cost or charge that is incurred for— (i) the construction, erection, assembly, or maintenance of, or the technical assistance provided with respect to, the merchandise after its importation into the United States; or (ii) the transportation of the merchandise after such importation.
(B) The customs duties and other Federal taxes currently payable on the imported merchandise 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.
19 U.S.C. § 1401a(b)(3).
All payments made by a buyer to a seller are part of the price actually paid or payable for imported merchandise under transaction value. See Generra Sportswear Co. v. United States, 905 F.2d. 377 (Fed. Cir. 1990). The court in Generra, 905 F.2d at 379, held that the term “total payment” in the definition of the phrase “price actually paid or payable” was intended to be “all-inclusive.” The U.S. Court of Appeals for the Federal Circuit’s (“CAFC”) reasoning stems from the language of 19 U.S.C. § 1401a(b)(4)(A), which states that the price actually paid or payable is the “total payment” made for imported merchandise whether the payments are “direct or indirect.” The court emphasized that if Congress had intended to exclude quota payments from transaction value, it could have enumerated them in 19 U.S.C. § 1401a(b)(3).
You describe the additional payments made by the importer to the seller as “force majeure” charges. The term “force majeure” means an “unforeseen event” or a “superior or irresistible force” beyond a party’s control such as an earthquake, a storm, a natural disaster or war, which excuses a party to a contract of its obligations because the event “has prevented performance of those obligations or made performance excessively burdensome.” Corbin on Contracts: Force Majeure and Impossibility of Performance Resulting From COVID-19, § 1.02. The CAFC has taken a position that, “A force majeure clause is not intended to buffer a party against the normal risks of a contract. The normal risk of a fixed-price contract is that the market price will change.” Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1293 (Fed. Cir. 2002), citing N. Ind. Pub. Serv. Co. v. Carbon County Coal Co., 799 F.2d 265, 275 (7th Cir. 1986).
As long as the additional so-called “force majeure” charges here were payments by the importer to the seller in connection with the imported merchandise, these payments are dutiable as part of the price paid or payable for the merchandise pursuant to 19 U.S.C. § 1401a(b)(4)(A). The valuation statute does not exclude charges incurred as a result of a “force majeure” from transaction value. See 19 U.S.C. § 1401a(b)(3).
We disagree that the “force majeure” charges could be treated as interest charges. While the additional payments here relate directly to the goods to ensure that they are manufactured according to agreed-upon specifications and delivered on time, interest charges pertain to the cost of financing the purchase of goods and not to the goods themselves. Thus, Headquarters Ruling Letter (“HQ”) H299343, dated Feb. 12, 2019, which involves the dutiability of interest charges, is not applicable to the subject “force majeure” charges.
The additional “force majeure” charges paid or payable by the importer to the seller for the merchandise as described above are dutiable as part of the transaction value for the merchandise.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by [CBP] field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
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 CBP officer handling the transaction.
Monika R. Brenner, Chief
Valuation and Special Programs Branch