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HQ 546858

June 2, 2000

RR:IT:VA 546858 KCC


Port Director
U.S. Customs Service c/o Chief, Residual Liquidation and Protest Branch 6 World Trade Center
Room 761
New York, New York 10048-0945

RE: Application for Further Review of Protest 1001-97-103347; transaction value; deductive value; turn-key contracts; selling commission; agency; related parties;

Dear Port Director:

This is in regard to the Application for Further Review of Protest 1001-97-103347 dated May 8, 1997, filed by George N. Grammas of Gardner, Carton & Douglas, on behalf of [XXXXXXXXXXXXXXXXXXXXXXXXXXXX], (“the importer”) concerning whether importations made pursuant to a turn-key contract are properly appraised pursuant to deductive value, §402(d) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. §1401a) Information presented by Counsel at a meeting and in additional submissions, including information presented to this office in a ruling request covering the same issue, was taken into consideration in reaching this decision. We regret the delay in responding.

The information furnished in connection with this Protest will be treated as confidential pursuant to §177.2(b)(7), Customs Regulations (19 CFR §177.2(b)(7)), and 5 U.S.C. §552, as set forth in a letter to Counsel dated November 25, 1997. Additionally, we have excised, in the public version of this decision, the bracketed (“[ ]”) confidential information.


The imported merchandise which is the subject of this protest is part of a turn-key contract between the importer, [XXXXXXXXXXXXXXXXXXXXXX], the related foreign supplier, [XXXXXXXXXXX], and the U.S. customer, [XXXXXXXXXXXXXXXXXXXXXXXXXX]. The imported merchandise consists of various components for a customized [XXXXXXXXXXXXXXXXXXX] (“customized good”). The protested entry is typical of the importer’s transactions involving turn-key contracts. The importer provided the following general description of its transaction with regard to turn-key contracts.

The importer, foreign supplier and U.S. customer negotiate a contract for the customized good. The contract price negotiated by all three parties is inclusive of all costs of delivering, installing, and commissioning the equipment at the U.S. customer’s facility and of all costs of training the customer’s personnel in the use and maintenance of the customized good. The importer is paid a commission by the foreign supplier for arranging the sale. The contract provides for the U.S. customer to make payments to the importer upon the completion of certain milestones. For example, payment may be due upon completion of the design of the equipment by the foreign supplier, customer acceptance of the equipment at the foreign supplier’s facility, delivery at the customer’s facility, or other events. A substantial part of the contract price may be paid before any equipment is delivered to the U.S. customer. As payments are received by the importer, corresponding payments are made by the importer to the foreign supplier. A copy of the contract and amendment #1 of the contract, which is the subject of this protest, was submitted for our examination.

The foreign supplier designs the equipment and, for the most part, manufactures the equipment. Some components or assemblies to be incorporated into the equipment at the customer’s facility will be supplied by the importer or an unrelated U.S. source (“domestic sourced equipment”). The value of the domestic sourced equipment is included in the contract price. Services provided to the customer after importation of the equipment, as in installation, commissioning and training, will be provided by the foreign supplier and the importer, and possibly by unrelated third parties (“post-import services”). The value of the post-import services is also included in the contract price.

The importer states that the foreign supplier would export to the importer

We note that the foreign supplier also ships the merchandise directly to the U.S. customer as is the case in Protest 4101-99-100081 dated February 4, 1999, filed by the importer in the Port of Cleveland. the merchandise, in multiple shipments because of the massive size of the customized good, subject to freight charges, customs duties and fees, broker fees and terminal fees. After importation, the importer would arrange for delivery of the merchandise to the U.S. customer. Subsequently, the foreign supplier, the importer and/or unrelated third party supplier would supply post-import services, such as installation, commissioning and training.

As evidenced by the purchase orders to the foreign supplier, the amount due the foreign supplier will be the contract price less the importer’s commission. To the extent that the importer provides domestic sourced equipment or post-import services, such work and payment will be separately accounted for pursuant to a purchase order or other request issued by the foreign supplier to the importer.

Specifically, with regard to this protest, the entry involved the 19th and last partial shipment for the U.S. customer. The invoice is from the foreign supplier to the importer for Order No 4 054 017-019 – S.O. 534 and describes the imported merchandise as [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]. The terms of sale are stated as C & F New York. Additionally, the invoice identifies the merchandise in the invoice as being sold subject to the terms of a [XXXXXXXXXXXXXXXXXXXXX] “customized good”, contract Number S.O. 534. We note that the invoice with regard to this protest is different than other invoices for the importer’s turn-key contracts. In other situations, the foreign supplier’s invoice lists the shipper/exporter as the foreign supplier, the consignee is the importer and the customer is the U.S. customer. The invoice identifies the partial shipment and identifies the contract number and work number. This example is taken from the entry documentation in Protest 4101-99-100081 dated February 4, 1999, filed by the importer in the Port of Cleveland.

The entries of the merchandise were liquidated pursuant to transaction value. The importer now states that the appropriate method of appraisement is deductive value. The importer provided a full discussion and presentation on the use of deductive value for its importation of turn-key contracts. It is now your position that deductive value pursuant to §402(d) of the TAA is the proper method of appraisement. We note that this is the lead protest for protested and open entries covering many of the importer’s entries at various ports.


Whether the imported merchandise which is the subject of a turn-key contract is appraised pursuant to deductive value in §402(d) of the TAA.


Merchandise imported into the United States is appraised in accordance with §402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”; 19 U.S.C. 1401a). Before we can appraise the imported merchandise under deductive value, we must first determine that the previous methods of appraisement, i.e., transaction value, transaction value of identical merchandise and transaction value of similar merchandise, were unacceptable. Therefore, we must begin our analysis within transaction value.

The preferred method of appraisement under the TAA is transaction value, defined as "the price actually paid or payable for the merchandise when sold for exportation to the United States," plus five enumerated additions, including any selling commission incurred by the buyer with respect to the imported merchandise. §402(b)(4(A) of the TAA provides that the term "price actually paid or payable" means:
the total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation 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.

First, we must determine the roles of the parties, i.e., the foreign supplier, the importer and the U.S. customer, in this transaction. 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).

For Customs purposes, the word "sale" generally is defined as a transfer of ownership in property from one party to another for a consideration. J.L. Wood v. United States, 62 CCPA 25, 33; C.A.D. 1139 (1974). While J.L. Wood was decided under the prior appraisement statute, Customs adheres to this definition under the TAA. The primary factors to consider in determining whether there has been a transfer of property or ownership are whether the alleged buyer has assumed the risk of loss, and whether the buyer has acquired title to the imported merchandise. See, HRL 544775 dated April 3, 1992, and HRL 543633 dated July 7, 1987.

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 provided, it appears that a bona fide sale occurred between the U.S. customer and the foreign supplier with the importer acting as a selling agent. Although the contract for the imported customized goods is between the U.S. customer and importer, it is our opinion that the U.S. customer purchased the customized good knowing that the foreign supplier was ultimately responsible for the design and manufacture of the customized good. As stated by the importer, the foreign supplier was involved in the negotiations with the importer. Moreover, all parties involved, i.e., the U.S. customer, the importer and the foreign supplier signed the contract. The contract also contained a parent guaranty clause whereby the foreign supplier guaranteed performance of the contract.

Additionally, as acknowledge by the importer, it received a commission as part of the contract which was established by the foreign supplier and agreed to by the importer. The purchase orders from the importer to the foreign supplier state that the foreign supplier received the contract price less the importer’s commission. The imported goods for the contracted for customized good were imported for the U.S. customer. The importer could not sell the goods at any price it deemed appropriate nor could the importer maintain the imported merchandise for its own inventory.

An examination of all the circumstances of the transaction indicate that, although the importer signed the contract with the U.S. customer, the importer’s actions and the structure of the transaction is that of the importer functioning as the foreign supplier’s selling agent. Therefore, the sale is between the U.S. customer and the foreign supplier. The importer’s commission is a selling commission which is included in the price actually paid or payable of the imported merchandise. Since the sale for export occurs between unrelated parties, the U.S. customer and foreign supplier, and there is no other evidence to indicate that transaction value is an unacceptable method of appraisement, there is no need to resort to other methods of appraisement pursuant to §402 of the TAA.

We note that the contract price includes costs for post-import services, international freight, customs duties and taxes, and any domestic sourced goods. As regards costs that are incurred after the merchandise has been imported, §402(b)(3) of the TAA states that:

The transaction value of imported merchandise does not include any of the following, if identified separately from the price actually paid or payable and from any cost or other item referred to in paragraph (1):

(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.

See also, §152.103(i), Customs Regulations (19 CFR §152.103(i). The above cited statutory provision clearly state that the transaction value of imported merchandise does not include any cost incurred for post-import services and customs duties of the imported merchandise that are identified separately from the price actually paid or payable.

Transportation costs pertaining to the international movement of merchandise from the country of exportation, to the extent included in the price actually paid or payable, are to be excluded from the total payment made for imported merchandise appraised under transaction value. The costs associated with transportation and U.S. duty are not the estimated costs, but the actual costs paid to Customs and the freight forwarder, transport company, etc.

In Headquarters Ruling Letter (HRL) 544538, issued December 17, 1992, Customs acknowledged that pursuant to §402(b)(4)(A) the cost of international transportation is to be excluded from the price actually paid or payable for imported merchandise. However, Customs explained that in determining the cost of the international transportation or freight, it always looked to documentation from the freight company, as opposed to the documentation between the buyer and the seller which often contains estimated transportation costs or charges. In essence, Customs requires documentation from the freight company because the actual cost, and not the estimated charges, for the freight is the amount that Customs excludes from the price actually paid or payable. See also HRL 543827, issued March 9, 1987, in which Customs determined that the proper deduction from the price actually paid or payable for marine insurance was the amount actually paid to the insurance company by the seller, as opposed to the amount paid by the related importer/buyer; and HRL 542467 dated August 13, 1981.

Additionally, a deduction from the total contract price should be made for any domestic sourced goods. Since domestic sourced goods are not imported, their value should not be subject to duty.


Based on the evidence available, the sale for exportation occurred between the U.S. customer and the foreign supplier. Since this sale is between unrelated parties and there is not other reason to negate the use of transaction value, transaction value is the appropriate method of appraisement. Therefore, the price actually paid or payable for the purpose of determining transaction value is that between the U.S. customer and foreign supplier. The price actually paid or payable includes the selling commission paid to the importer, but does not include the costs associated with post-import services, international freight, customs duties and taxes, and any domestic sourced goods.

This Protest should be DENIED. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993, Subject: Revised Protest Directive, 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 or entries in accordance with the decision must be accomplished prior to mailing the decision.

Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Thomas L. Lobred
Chief, Value Branch

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