HQ 546377 - Application for further review of protest no. 2704-95-103332; Appraisement of machine tools and machine tool parts; Bona Fide Sale; Sale for exportation; Nissho Iwai; Synergy; HRLs 545105 and 545709 - United States International Trade Commision Rulings

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HQ 546377

November 12, 1996

VAL RR:IT:VA 546377 LPF

CATEGORY: VALUATION

Port Director
U.S. Customs Service
300 S. Ferry St.
Terminal Island, CA 90731

RE: Application for further review of protest no. 2704-95-103332; Appraisement of machine tools and machine tool parts; Bona Fide Sale; Sale for exportation; Nissho Iwai; Synergy; HRLs 545105 and 545709

Dear Director:

This is a decision on an application for further review (AFR) of a protest filed November 9, 1995, against your decision concerning the valuation of various machine tools and machine tool parts. The entries were liquidated between August 11, 1995 and November 3, 1995. We are in receipt of correspondence submitted by counsel on behalf of Yuasa YI, Inc. (YI) in this regard.

FACTS:

YI imports machine tools and parts of machine tools purchased from Yuasa Trading Co., Ltd. (YT) of Tokyo, Japan. YT entirely owns YI. YI sells the merchandise to U.S. customers and maintains an inventory at its facility for its customers. YI sends an order plan to YT who in turn sends it to various manufacturers indicating to YT whether they can produce the goods.

YT purchases from five separate unrelated vendors in Japan, Yamato Koki KK, Kawatatec KK, Kobayashi Iron Works Co., Ltd. and Brother Industries, Ltd., and does not manufacture any of the articles purchased by YI. Purchase orders sent by YT to the manufacturers indicate that the articles are to be sent directly to the U.S., along with the delivery date, and that the merchandise is to be labeled with plates indicating that the articles were made in Japan including the "Yuasa" trademark which has been registered in the U.S. All packing, inspecting and testing are done at the manufacturers' facilities prior to shipment to the U.S. The purchase orders provide instructions as to the port from which the merchandise is to be shipped and the marks and numbers to be placed on the shipping cartons, indicating the goods are destined for Los Angeles. By way of fax, the manufacturers inform YI when a shipment is arriving. All necessary documentation is sent by YT to YI and its customs broker.

You state that title passes to YT at the time of sale by the manufacturer and does not pass to YI until the merchandise arrives in Los Angeles. YI purchases the articles CIF Los Angeles.

You explain that the foreign vendors negotiate prices with YT on a yearly basis. Certifications were provided indicating that the transactions between YT and the manufacturers are conducted at arm's length and the prices for the merchandise are freely negotiated. Additionally, an affidavit executed by YT states that YT provides instructions to each of the manufacturers through purchase orders, is free to sell the merchandise at the price it desires and does so after negotiations with the purchaser, does not consult with the manufacturers as to whom the articles will be sold other than to indicate any special markings or product configurations, and is free to choose the customers to whom it sells.

You provided documentation, translated from Japanese to English, concerning the transactions occurring between each of the four manufacturers. The documentation includes:
a. purchase orders from YI to YT reflecting CIF shipping terms;
b. purchase orders from YT to the manufacturers reflecting "Ex-Go" shipping terms and that the merchandise was, in some cases, to be labeled with the Yuasa trademark and to be sent to Los Angeles with marking on the boxes indicating "YI" and "Los Angeles";
c. invoices from the manufacturers to YT indicating the U.S. as the destination for the merchandise;
d. invoices from YT to YI reflecting "CIF Los Angeles" shipping terms;
e. packing lists from the manufacturers to YT also indicating a U.S. destination;
f. YT's deposit record indicating payment from YT to the manufacturers; and
g. bank collection statements indicating that YI paid YT for the merchandise.

Based on these facts, it is your position that bona fide sales occur between the foreign manufacturers and YT and that transaction value based on the price paid by the latter to the former is appropriate for appraisement.

ISSUE:

Based on the evidence presented, whether bona fide sales occur between the foreign manufacturers and YT and, if so, whether transaction value as established by these sales serves as the appropriate basis for valuation.

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 amounts for the enumerated statutory additions (emphasis added). Accordingly, bona fide sales must exist between the foreign manufacturers and YT for appraisement of the imported merchandise to be based on the transaction value represented by that price.

In determining whether a bona fide sale has taken place between a potential buyer and seller of imported merchandise, no single factor is determinative. Rather, 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. Dorf International, Inc. v. United States, 61 Cust. Ct. 604, A.R.D. 245 (1968). Customs recognizes the term "sale," as articulated in the case of J.L. Wood v. U.S., 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974), to be defined as: the transfer of property from one party to another for consideration.

However, several factors may indicate whether a bona fide sale exists between a potential buyer and seller. In determining whether property or ownership has been transferred, Customs considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, Customs may examine whether the potential buyer paid for the goods, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller.

In determining whether the relationship of the parties to the transaction in question is that of a buyer-seller, where the parties maintain an independence in their dealings, as opposed to that of a principal-agent, where the former controls the actions of the latter, Customs will consider whether the potential buyer:
a. provided (or could provide) instructions to the seller;
b. was free to sell the items at any price he or she desired;
c. selected (or could select) his or her own customers without consulting the seller; and
d. could order the imported merchandise and have it delivered for his or her own inventory.

Based on the information and documentation you have provided, it appears that bona fide sales occur between the foreign manufacturers and YT. You provide that title passes to YT at the time of the manufacturer's sale and does not pass to YI until the merchandise arrives in the U.S. In this case, the terms of sale are "Ex Go," as provided on the manufacturers/YT purchase orders, and "CIF Los Angeles," as provided on the YT/YI invoices.

In accordance with your submission, we understand "Ex Go" to mean "Ex Go-down." Insofar as "go-down" is an antiquated term defined as "a warehouse in an oriental country," we equate that term with the more current one of "Ex-Works." Webster's Ninth New Collegiate Dictionary at 525 (1990). In an Ex-Works transaction the buyer bears all costs and risks involved in taking the goods from the seller's premises to the desired destination. International Chamber of Commerce, Incoterms, at 18-19 (1990). Furthermore, we consider the "CIF Los Angeles" term of sale reflective of a "shipment contract." It has been Customs' position that, "unless otherwise agreed by the parties, title and risk of loss pass from the seller to the buyer . . . in 'shipment' contracts when the merchandise is delivered to the carrier for shipment." Headquarters Ruling Letter (HRL) 545105, issued November 9, 1993. Hence, unless the parties did in fact agree otherwise, the shipping terms indicate, at the very least, that YT possesses title and risk of loss from the time the goods are acquired from the manufacturers' premises until delivery aboard the vessel at the port of shipment. Nevertheless, in this case, because other relevant evidence has been made available concerning the roles of the parties and of the transaction in general, such evidence should be examined and afforded substantial weight in determining whether bona fide sales occur.

Your statements concerning YT's abilities to freely and independently negotiate its prices are indicative of a buyer/seller relationship. The submitted purchase orders, invoices and bank records show that the manufacturers sell the merchandise to YT who resells it to YI. Further, these documents are consistent with a finding that YT autonomously determines its prices, is paid for the merchandise and, in general, acts as buyer/seller. We assume that YT's daily operations would be consistent with such a finding.

Furthermore, from the evidence submitted, such as the purchase orders and invoices, it appears that YT is: 1) in a position to give instructions to the manufacturers; 2) free to sell the merchandise from the manufacturers at any price it desires; and 3) able to select its own customers and negotiate with them without consulting the manufacturers. These factors indicate that YT was not subject to control by either the manufacturers or YI and acted primarily for its own account, as is characteristic of an independent buyer/seller. See Dorf, supra, and HRL 545709, issued May 12, 1995.

For these reasons, the evidence and supporting documentation submitted for our review establishes that bona fide sales exist between the foreign manufacturers and YT. Accordingly, the decisions reached in Nissho Iwai American Corp. v. United States, 16 CIT 86, 786 F. Supp. 1002 (CIT 1992) rev'd 982 F.2d 505 (Fed. Cir. 1992) and Synergy Sport International, Ltd. v. United States, 17 CIT 18 (1993) are relevant.

In Nissho Iwai and Synergy, the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed the proper appraised value of merchandise imported pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman, and a U.S. purchaser. In both cases the middleman was the importer of record. Both courts held that the manufacturer's price, rather than the middleman's price, was valid as long as the transaction between the manufacturer and the middleman fell within the statutory provision for valuation. The courts explained that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at "arm's length" free from any nonmarket influences and involving goods "clearly destined for export to the United States."

In regard to this particular matter, you have advised, supported by several certifications, that the middleman, YT, and the foreign manufacturers are not related and that these sales represent freely negotiated, arm's length transactions. Moreover, you have presented evidence demonstrating that the merchandise is clearly destined for the U.S. The submitted invoices, purchase orders and packing lists indicate that the merchandise is produced and sold for export to the U.S. and specifically for shipment to YI in Los Angeles. The marks and numbers placed on the shipping cartons as well as the Yuasa trademarks (registered in the U.S.) placed on the merchandise are consistent with such a finding. Accordingly, the sales between the middleman and the foreign manufacturers are "arm's length" sales and the merchandise is "sold for exportation to the U.S." within the meaning of section 402(b)(1).

We do note, however, that we understand the submitted evidence merely to reflect a representative sample of the documentation available for the import transactions at issue. As this evidence does not specifically pertain to the entries subject to the instant protest, we stress that the findings provided herein only shall apply to these entries insofar as appropriate documentation pertaining to the actual transactions and entries subject to this protest is submitted to the cognizant appraising officer.

HOLDING:

Based on the evidence presented, it has been demonstrated that bona fide sales occur between the foreign manufacturers and YT, and the transaction value appropriately is based on the price actually paid or payable by YT to the manufacturers. You are directed to grant the protest, subject to the presentation of documentation appropriate to the entries at issue, in accordance with the foregoing. A copy of this decision with the Form 19 should be sent to the protestant.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office 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, 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, the Freedom of Information Act and other public access channels.

Sincerely,

Acting Director
International Trade Compliance
Division

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