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HQ 547844

February 15, 2001

RR:IT:VA 547844 DCC


Mr. Vincent Bowen
White & Case, LLP
601 Thirteenth Street, NW
Suite 600 South
Washington, DC 20005-3807

RE: Transaction Value; Nissho Iwai; Sale for Export; Clearly Destined for United States

Dear Mr. Bowen:

This is in response to your letter dated October 30, 2000, on behalf of your client [ ] or the “importer,” and its fully owned subsidiary [ ] or the “subsidiary.” You requested a ruling regarding the appraisement of certain merchandise imported into the United States by the importer.

In addition, you requested confidential treatment for certain information submitted pursuant to section 177.2(b)(7) of the Customs Regulations chapter 19. This information concerns the identity of the parties involved and your client’s business practices. Because release of information concerning the importer’s business practices would harm the importer’s competitive position we have granted your request for confidential treatment. Accordingly, proprietary information has been bracketed in this letter and will be redacted from any public versions.


According to your submission, neither the importer nor the subsidiary is related to the supplier. Under the prospective transaction, the importer will order and purchase all of its imports from the subsidiary. The subsidiary performs the duties of identifying, selecting, managing and developing overseas suppliers; monitoring markets, supply and demand; negotiating contracts; and making purchasing decisions.

The subsidiary purchases the merchandise on its own account from the overseas suppliers and assumes the risk of loss at or before the time of shipment. The subsidiary is also liable to the importer for losses resulting from any failure to deliver products. Any claims made by the subsidiary against the supplier are made on the subsidiary’s own account. The subsidiary does not provide any assists to the overseas suppliers and does not pay any royalties, license fees, or any type of commissions to the supplier.

Because your ruling request covers prospective transactions, you provided sample commercial documents describing a typical transaction. As described in the commercial documents you provided, the importer issues a purchase order for 2,030 pounds of oleo capsicum with the subsidiary, which issues a sales note confirming the importer’s order. The subsidiary then issues a purchase order to the foreign supplier for the same quantity of oleo capsicum. The subsidiary’s purchase order and the supplier’s invoice identify the importer as the consignee and state the terms of delivery as C&F [ ]. The bill of lading designates the importer as the notify party.

You also provided various financial documents from a sample transaction including bank records of wire transfers, letters authorizing wire transfers, and records of receipt of payments. These records trace the transfer of funds from the subsidiary to the overseas supplier, and from the importer to the subsidiary.

In addition, pursuant to the commercial documents, the merchandise must meet the quality standards of the American Spice Trade Association (“ASTA”) and U.S. Food and Drug Administration (“FDA”).


Whether the transaction between the overseas supplier and the importer’s subsidiary may be used to determine the transaction value of the merchandise.


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; codified at 19 USC §1401a). The preferred method of appraisement under the TAA is transaction value, which is defined as “the price actually paid or payable for the imported merchandise when sold for exportation to the United States,” plus certain enumerated additions thereto to the extent they are not otherwise included in the price actually paid or payable. 19 U.S.C. §1401a(b)(1). Thus, for imported merchandise to be appraised under transaction value, it must be the subject of a bona fide sale between the buyer and seller.

For Customs purposes, the term “sale,” as articulated by the court in J.L. Wood v. United States, 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974), is defined as the transfer of property from one party to another for consideration. No single factor is decisive in determining whether a bona fide sale has occurred. Customs makes each determination on a case by case basis and will consider such factors as whether the purported buyer assumed the risk of loss and acquired title to the imported merchandise. In addition, Customs may examine whether the purported buyer paid for the goods, and whether, in general, the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as buyer and seller. See, e.g., Headquarters Ruling Letter (HRL) 545709, dated May 12, 1995, and HRL 545474, dated August 25, 1995.

With respect to the prospective sales transaction in the present case, your submission and the sample commercial documents you provided indicate the existence of a bona fide sale between the subsidiary and the foreign supplier. According to your submission, the importer and the importer’s subsidiary are not related to the overseas supplier. Moreover, the subsidiary does not provide any assists to the supplier, nor does the subsidiary pay any royalties, license fees, or any type of commissions to the supplier. In addition, the sample commercial documents and bank payment records show that the subsidiary paid for the merchandise and that such payments were tied to a specific importation of merchandise. Finally, the terms of sale in the documents indicate that title to the merchandise passes to the subsidiary at the ship’s rail and that the subsidiary retains title to the goods until one mile before entering the twelve-mile territorial seas of the United States. For these reasons, we therefore determine that there is a bona fide sale between the subsidiary and the supplier.

In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992), the U.S. Court of Appeals for the Federal Circuit reviewed the standard for determining transaction value when there is more than one sale which may be considered as being a sale for exportation to the United States. The court ruled that for merchandise imported pursuant to a three-tiered transaction to be appraised on the basis of the manufacturer-middleman sale, the transaction must be conducted at arm’s length and the merchandise must be clearly destined for export to the United States at the time of the sale.

The court reaffirmed the principle established in E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that the manufacturer’s price, rather than the middleman’s price, is valid so long as the transaction between the manufacturer and the middleman falls within the statutory provision for valuation. Nissho Iwai, 982 F.2d at 511. In upholding the McAfee standard the court stated that in a three-tiered distribution system, “the manufacturer’s price constitutes a viable transaction value when the goods are clearly destined for export to the United States and when the manufacturer and the middleman deal with each other at arm’s length, in the absence of any non-market influences that affect the legitimacy of the sales price.” Id. at 509. See also, Synergy Sport International, Ltd. v. United States, 17 CIT 18 (1993).

As a general rule, Customs presumes that the price paid by the importer is the appropriate basis for determining transaction value, and the burden is on the importer to rebut this presumption. See HRL 546091, dated January 3, 1996. To rebut this presumption, the importer must, in accordance with the court’s standard in Nissho, provide evidence that at the time the middleman purchased, or contracted to purchase, the imported merchandise, the goods were “clearly destined for export to the United States” and that the manufacturer and middleman dealt with each other at “arm’s length.”

To support your contention that the supplier’s sales price is the appropriate basis for determining transaction value you assert that the merchandise was destined for the United States throughout the entire transaction. You point out that the commercial documents identify [ ] as the destination port and the importer as the consignee. You also highlight the fact that the documentary evidence demonstrates that the merchandise meets standards established by the FDA and ASTA, as well as the importer’s own specifications.

Based on the evidence presented it appears that the subject merchandise was clearly destined for export to the United States at the time of sale. According to the purchase order and the sales contract, the merchandise was prepared to meet ASTA and FDA standards. Furthermore, the sample commercial documents show that the quantity ordered by the importer is consistent with the subsidiary’s purchase order, the subsidiary’s sales contract, the supplier’s invoice, and the bill of lading. These documents also demonstrate that at all times the merchandise was intended for the ultimate consignee, the U.S. importer. Moreover, the bill of lading shows the merchandise was shipped directly to the U.S. importer. Given the documentary evidence provided it is evident that the merchandise was clearly destined for the U.S. importer at the time of the transaction.

Finally, the court in Nissho and Synergy stated that in order to be viable under the valuation statute, the transaction must be negotiated at arm’s length and free from any nonmarket influences. You claim that because neither the importer nor the subsidiary have any affiliation with the supplier the sales transaction between subsidiary and the supplier were conducted at arm’s length. In addition, you cite Customs publication “Determining Transaction Value in Multi-Tiered Transactions,” T.D. 96-87, 30/31 Cust. Bull 52/1, January 2, 1997, which states: “In general, Customs will consider a sale between unrelated parties to have been conducted at arm’s length.” Finally, you note that although the importer and subsidiary may occasionally purchase merchandise from related suppliers, for purposes of this ruling all merchandise is purchased from unrelated suppliers. Based on your representation that there is no affiliation between either the importer or the subsidiary and the overseas supplier we determine that the sale from the supplier to the importer were negotiated at arm’s length.


Based on the evidence presented, the transactions between the subsidiary and the overseas supplier consists of bona fide sales conducted at arm’s length, wherein the merchandise is clearly destined for the U.S. importer. Accordingly, the manufacturer’s price is the appropriate basis for determining the value of the imported merchandise. Please note that the findings set forth in this ruling are limited to the specific facts of this case, and that these findings should not be relied upon by any other persons. Further determinations in this regard will be made on a case by case basis only.


Virginia L. Brown
Chief, Value Branch

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