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HQ 545549

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June 1, 1994

VAL CO:R:C:V 545549 CRS

CATEGORY: VALUATION

District Director
U.S. Customs Service
9400 Viscount Boulevard
Suite 104
El Paso, TX 79925

RE: Application for Further Review of Protest No. 2402-93-1000037

Dear Sir:

This is in reply to your memorandum of January 27, 1994, forwarding an application for further review of the above referenced protest, filed by counsel Baker & Hostetler, on behalf of Climatex, Inc. (the "protestant"). We regret the delay in responding.

FACTS:

Protestant imported the subject merchandise (galvanized steel sheets) from a related party "seller" in Mexico. The merchandise was "purchased" through a debt-equity swap (the "swap") with the Mexican government. Under the terms of the swap agreement, the protestant purchased, at less than face value, Mexican sovereign debt held by creditor banks. The debt was exchanged with the Mexican Treasury for pesos, which were deposited in the account of the related party. The related party used these funds to purchase materials used to manufacture the imported merchandise. The swap price apparently represents the full "purchase" price of the imported merchandise. However, by using the swap mechanism the protestant received a far more favorable exchange rate than it otherwise would have. While no figure is quoted in the instant matter, it is illustrative that in a companion case (HRL 544878) counsel stated that had the protestant engaged in a straightforward currency exchange, it would have received forty-seven percent fewer pesos than it did through the swap. Protestant contends that the imported merchandise should be appraised under transaction value (section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979; 19 U.S.C. ? 1401a) based on the cost of the debt-equity swap (the "swap") with the Mexican government.

However, you contend that the cost of the swap is not an appropriate basis on which to determine transaction value. Instead, you recommend that the protest be denied in accordance with an offer in compromise submitted by protestant pursuant to 19 U.S.C. ? 1617. The offer was accepted by the Penalties Branch, Office of Regulations and Rulings, in a letter dated August 6, 1993. It is therefore your position that the protest be denied. You also note that in view of Customs' acceptance of the offer in compromise, the Penalties Branch has also recommended denial.

ISSUE:

The issue presented is whether payments in respect of a debt-equity swap constitute the price actually paid or payable of the imported merchandise.

LAW AND ANALYSIS:

Section 174.28, Customs Regulations provides that "[i]n determining whether to allow or deny a protest filed within the time allowed a reviewing officer may consider . . . additional grounds or arguments submitted in writing by the protesting party . . . ." 19 C.F.R. ? 174.28. In a letter dated May 4, 1994, the protestant requested that the protest and application for further review be withdrawn. However, the Customs Regulations do not provide for the withdrawal of protests. Accordingly, pursuant to protestant's request of May 4, 1994, the protest should be denied. Nevertheless, we note that the offer in compromise involved a full and complete settlement of all civil claims and charges related to valuation issues.

HOLDING:

Pursuant to the foregoing, the protest should be denied in full. A copy of this decision should be attached to the Form 19 Notice of Action.

In accordance with section 3A(11)(b), Customs Directive 099 3550-065, dated August 4, 1993, this decision should be mailed by your office to the protestant no later than sixty days from the date of this letter. Sixty days from the date of this 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, Lexis , the Freedom of Information Act and other public access channels.

Sincerely,


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