OT:RR:CTF:VS H110615 GG
Service Port Director
U.S. Customs and Border Protection
1 East Bay Street
Savannah, GA 31401
RE: Application for Further Review of Protest No. 1703-09-100210; Appraisement of Merchandise; Post-Importation Price Decreases
Dear Port Director:
This is in response to the application for further review (“AFR”) of the protest referenced above.
FACTS:
Timber Products Company (“TPC”) entered a shipment of wood flooring from Brazil on February 28, 2006. On June 20, 2006, TPC filed an amended entry, in which the entered values of two of the line items were adjusted downwards. The difference between the original and revised entered value of each line item was now categorized on the amended entry as a non-dutiable charge. CBP liquidated the entry on December 19, 2008, in the process of which it appraised the wood flooring at the originally entered amounts.
TPC filed a timely protest and AFR on June 16, 2009 against the liquidation and appraisement of the entry. It explains that the original and revised entered values were based on a purchase/marketing agreement between TPC and its supplier. A copy of a Marketing Agreement Addendum (“the Agreement”) was enclosed with the protest. This document, which is undated but makes reference to a meeting in Brazil that occurred in June, 2006, confirms “the current procedure and verbal agreement of October 2004.” It is signed by officers of the buyer and seller. The Agreement stipulates that the supplier will be paid a certain percentage of the invoice, less ocean freight and duty. The protestant notes that the remaining percentage is for TPC to cover costs and allow for a small margin. The Agreement also requires TPC to prepay for the products, at a rate that will fluctuate with the market, upon receipt of faxed documents. The protestant indicates that the original commercial invoice reflects the initial deposit or prepayment amount. It is explained that final valuation remains pending until all material covered under the entry is sold and the contract with the supplier is approved.
A copy of the approved supplier’s contract was also enclosed. This document, which was dated June 8, 2006, is a spreadsheet listing various entries, including the entry under protest. It contains several items of information about each listed entry, including the entry date and number, the purchase order and invoice number, the prepayment amount, and the final FOB material price. The contract also indicates that the difference in value will be paid to TPC, either through deductions against amounts due from TPC or as direct payments to TPC at a future date. The contract is signed by a representative of the supplier.
The port denied the AFR and the protest on March 1, 2010. The noted reasons for the denial of the AFR were that there was insufficient documentation, and that the agreement between TPC and the supplier was signed after the date of importation of the subject entry. The reason provided for the denial of the protest was that proof of payment had not been submitted to support the price actually paid or payable.
The protestant then submitted a request to set aside the denial of further review, dated April 29, 2010. This office granted the request, for the reason that in its justification for AFR, the protestant noted that other ports had appraised the same type of merchandise at the lower price. We set aside the denial of the AFR and voided the denial of the protest, and commenced further review of the protest.
ISSUE:
Whether the post-importation price decreases may be taken into account in determining the transaction value of the imported wood flooring.
LAW AND ANALYSIS:
The preferred method of appraisement is transaction value, which is defined by section 402(b)(1) of the TAA (19 U.S.C. § 1401a(b)) as "the price actually paid or payable for the merchandise when sold for exportation to the United States..." plus certain additions specified in section 402(b)(1) (A) through (E). The term
"price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as
“the 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.”
Section 402(b)(4)(B) of the TAA provides that 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 transaction value. See also 19 CFR 152.103(a)(4). However, we have ruled that if the decrease in price is pursuant to a formula which was in existence prior to the date of exportation, such decrease will not be disregarded. See Headquarters Ruling Letter ("HQ") H023813, dated December 1, 2008; and HQ 544944, May 26, 1992.
In this regard, section 152.103(a)(1), Customs Regulations (19 CFR
§ 152.103(a)(1)) provides that in determining transaction value, the price actually paid or payable will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula, such as the price in effect on the date of export in the London Commodity Market. CBP has determined that to be a valid formula, the pricing methodology must be fixed at the time of importation, and the formula must be an objective standard and must be based on a future event over which neither the seller nor the buyer has any control.
In the case under consideration, the price Agreement and the supplier’s contract were entered into after the merchandise had already been entered. Although the Agreement is not dated, it makes reference to a meeting in Brazil that took place in June 2006. The date of the protested entry was February 28, 2006. (The Agreement also makes reference to an October 2004 verbal pricing agreement, but no other evidence in support of the existence of such verbal agreement has been provided.) This fact alone would prevent the finding that there was a formula in existence at the time of importation. Further, neither the Agreement nor the contract provides an explanation as to the manner in which the “final FOB material value” was derived. We do not know if this value was based on an objective standard over which TPC and the supplier had no control.
HOLDING:
The post-importation price decreases were not made pursuant to a valid formula that was in existence at the time of importation. Accordingly, the decrease in price shall be disregarded in determining the transaction value of the imported merchandise. The protest is DENIED.
The protest is denied. In accordance with the Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP 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 mailing of the decision. Sixty days from the date of the decision Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP 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,
Myles B. Harmon
Director
Commercial and Trade Facilitation Division