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HQ 547158

March 1, 2002

VAL RR:IT:VA 547158 NL


Port Director
U.S. Customs Service
555 Battery Street
San Francisco, CA 94126

RE : Internal Advice on Bona Fide Sales for Exportation; Transaction Value

Dear Director:

This is in response to your memorandum dated August 6, 1998, forwarding a request for internal advice submitted by counsel on behalf of Pohang Steel America Corporation (POSAM). The request arises from the findings and recommendations of a U.S. Customs Compliance Assessment Team (CAT), which conducted an audit of POSAM’s import transactions for its 1995 fiscal year (1/1/95 through 12/31/95). The CAT delivered its Compliance Assessment Report on April 13, 1998.

In response, counsel for POSAM submitted its request for internal advice and supporting materials to you on May 22, 1998. Representatives of this office met with counsel for POSAM on March 2, 2000. The documentation offered in support of the respective positions has been very substantial. Nevertheless, we regret the delay in responding.

Confidential treatment has been requested by POSAM for certain exhibits and information in its submission on grounds that these materials contain confidential business information. This request has been granted by this office. Information covered by the grant of confidential treatment is indicated in this decision by brackets and will not be included in the copies of the ruling made available to the public.


The transactions at issue involve the importation of hot-rolled steel bands manufactured in Korea by POSAM’s parent company, Pohang Iron and Steel Co. Ltd. (POSCO). Under arrangements reached in 1986, wholly-owned subsidiaries of POSCO and United States Steel (now operating as USX), entered into an equally-owned joint venture known as USS-POSCO Industries (UPI) to operate a mill in Pittsburg, CA. The UPI general partners are POSAM and Pitcal, a wholly-owned subsidiary of USX. Both are Delaware corporations.

Various items of commercial documentation associated with individual shipments were examined during the audit. The Customs auditors and counsel for POSAM are in fundamental disagreement as to their legal significance for appraisement purposes. The auditors view the dealings between POSCO, the trading companies, POSAM and UPI as means to facilitate the sales provided for in the Agreement. It is their position that the transaction between POSCO and UPI, governed by the Agreement, is the sale for exportation for purposes of appraisement. Relatedly, they consider the trading companies and POSAM to have been acting as agents of POSCO in the sales transactions between the POSCO and UPI, who are the principals in this interpretation.

POSAM considers each exchange to be a bona fide sale that is eligible for consideration as the basis of transaction value, and considers the Hot Band Requirements Agreement to be not a sales agreement but an overall supply arrangement. In POSAM’s view, POSAM is not POSCO’s agent, but rather an arms-length purchaser from the trading companies.

The following documents have been offered by POSAM as reflecting the chain of transfers between POSCO, trading companies, POSAM and UPI. References are to Exhibits in POSAM’s submission.[

While POSAM asserts that there were a series of sales, defined as transfers of property and title for consideration, the CAT considers that the documentation reflects merely arrangements for delivery and payment called for under the Agreement. It disputes that each transfer constituted a sale, taking the view that not every payment was associated with a transfer of ownership and assumption of risk of loss. Finally, the CAT observes that even if sales between these intermediate parties took place, this does not establish whether any of them was a viable sale for exportation for the purposes of transaction value.

The Compliance Assessment Report concluded that POSAM, as the importer of record for these shipments, had incorrectly treated dealings between certain trading companies and itself as the basis for appraisement under transaction value, resulting in undervaluation of the merchandise. The Report concluded that sales for exportation viable for appraisement under transaction value took place between POSCO and UPI, and that appraisement should have been on the basis of the prices determined quarterly under the formula set out in the Hot Band Requirements Agreement between POSCO and UPI. As a corollary, the Report concluded that POSAM and the trading companies functioned as agents of POSCO in making sales to UPI.

Maintaining its position that the transactions from the trading companies to it were viable for purposes of appraisement under transaction value, POSAM requests internal advice, to which we reply as set forth below.


For the purposes of appraisement under transaction value, who are the parties to statutorily viable sales for exportation?


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"; 19 U.S.C. 1401a). 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.

Section 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.

The Customs Regulations further provide that the price actually paid or payable "will be considered without regard to its method of derivation. It may be the result of discounts, or negotiations, or may be arrived at by the application of a formula...." 19 CFR § 152.103(a)(1).

Sales Under the Hot Band Requirements Agreement

Having considered POSAM’s various arguments, we find no basis to disqualify transactions between POSCO and UPI as viable sales for exportation under transaction value. Contrary to POSAM’s arguments, we find that the Hot Band Requirements Agreement is controlling.

The Agreement is lengthy and comprehensive, and clearly entitled to the presumption that it reflects entirely the intentions of its drafters. In general, the Agreement sets forth the identity of the parties, the goods to be sold, the mechanism for determining the amounts of goods to be sold, delivery terms, payment terms, and a comprehensive price determination formula. In particular:

Finally, the Agreement provides that Contrary to POSAM’s contentions that no sales took place under the Agreement between POSCO and UPI, the proof that sales took place is provided by the delivery arrangements carried out by POSCO’s agents. Far from modifying the Agreement, the subordinate exchanges served to carry out its provisions.

The Customs Service examined closely similar claims in HRL 544793 (February 16, 1995)(unpublished), which affirmed the decision reached in HRL 544659 (July 3, 1991). In those decisions the importer urged that transactions by intermediaries were the actual sales for exportation. Customs declined to accept the importer’s claims that master sales agreements did not constitute sales for exportation for lack of definite quantity terms, or that in the alternative, the conduct of the parties modified the master sales agreements to ratify the transactions by intermediates. It was ruled that the master sales agreements fully set forth the legal obligations of the parties regarding sale of the merchandise. Moreover, each agreement contained a provision that no modification of an agreement was to be effective unless it was expressly provided in writing that a new undertaking was intended as a modification. Similarly, here we find no defect in the Hot Band Requirements Agreement as a contract of sale, and there is no valid modification of the undertakings set out in the Agreement.

Sales from Trading Companies to POSAM

These are the transactions that POSAM, as importer of record, reported to Customs for transaction value appraisement. [

POSAM supports its position that these sales are an acceptable basis for transaction value appraisement by insisting that they meet the judicially approved standard for when a “sale” has taken place as set out by the Court of Customs and Patent Appeals in the decision of J.L. Wood v. United States, 62 CCPA 25, 33; C.A.D. 1139 (1974). In that decision the court indicated that a “sale” generally is defined as a transfer of ownership for in property for a consideration. POSAM then argues that the sales between trading companies and POSAM meet this definition as well as the factors that Customs has examined in determining when a sale has occurred. These factors are: whether the buyer has assumed the risk of loss for, and acquired title to, the imported merchandise; whether the buyer paid for the goods; whether the payments can be linked to specific importations of merchandise; and whether the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as buyer and seller. See, e.g., HRL 546607 (August 17, 1999) and decisions cited therein.

POSAM argues further that, sales having taken place between the trading companies and POSAM within the meaning of the J.L. Wood standard and Customs practice, they are entitled to treatment as bona fide sales for exportation whose price actually paid or payable may serve as the basis for transaction value appraisement. It is POSAM’s position that even if one party can completely control the actions of another party, this does not ruin the possibility that a legitimate sale may still exist between the parties. POSAM emphasizes, and we agree, that in this inquiry no single factor is determinative. 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).

Beginning with the documentary exhibits, particularly items 7 through 16, we have considered whether there is sufficient evidence of sales between the trading companies and POSAM. Applying the J.L. Wood and Customs standards, we find some evidence that payments were made by POSAM to the trading companies for hot band steel, and that these payments could be linked to specific shipments.

The issues of assumption of risk of loss and transfer of title were sharply contested between POSAM and the Compliance Assessment team. [

The final factor under the J.L. Wood standard is whether the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as buyer and seller. Here also the conclusion was highly debated between POSAM and the auditors. The answer goes to the question not merely of whether there was a legally enforceable sale, but whether there was a bona fide sale for exportation that is acceptable for transaction value appraisement. POSAM has offered some support for its case that the J.L. Wood standard was met, but we do not think this is sufficient of itself to qualify the sale between trading companies and POSAM as acceptable for transaction value appraisement.

The Customs Service’s approach to the matter of bona fide sales for exportation has been set forth in an Advanced Informed Compliance Publication entitled, “Bona Fide Sales and Sales for Exportation.” (1996, Revised, January, 2000). In that publication Customs stated that in deciding whether the roles of the parties and circumstances of the transaction indicate that the parties were functioning as buyer and seller for purposes of a bona fide sale, it will consider as evidence of a buyer-seller relationship 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.

Applying these considerations to POSAM’s role in dealing with the trading companies (or with POSCO), we conclude that in each case the answer is in the negative. POSAM did not and could not give instructions to the seller. It merely conveyed instructions from UPI to POSCO. POSAM was not free to sell the hot bands at a price of its choosing. POSAM could not select its own customers without consulting the POSCO. Finally, there is no evidence that POSAM could order hot bands and have it delivered for its own inventory. The CAT indicated that as concerns hot bands, POSAM did not recognize inventory for accounting purposes.

Customs takes the position, also stated in the Informed Compliance Publication, that the fact that a potential buyer cannot assume such tasks is an indication that the party is serving as an agent. Here is evidence that POSAM is functioning as an agent in these circumstances.

POSAM has argued (submission, p. 75) that the fact that none of the answers was in the affirmative does not disqualify the sale between the trading companies and POSAM. However, other than POSAM’s payments to the trading companies and claimed passage of title and assumption of risk of loss, there is no compelling evidence that POSAM functioned as a bona fide buyer. There is disputed evidence concerning passage of title and risk of loss. The Hot Band Requirements Agreement is plainly to the contrary. There is no evidence of independent negotiation on the part of POSAM. In this instance the passive role of POSAM in the transactions demonstrates that POSAM is not a principal in these arrangements, but an agent facilitating the delivery of, and payment for, the hot bands.

While POSAM insists that evidence of sales under the J.L. Wood standard is proof that POSAM was not the agent of any other party, there is judicial authority for the view that an agent may also participate in transactions as a buyer or seller. Such was the situation considered by the Customs Court in Dorf International, Inc. v. United States, 61 Cust. Ct. 604, A.R.D. 245 (1968). In that case, by an agreement styled as one between independent contractors, the importer bought machinery from a foreign seller at a discount from retail, and entered the merchandise for appraisement at the discounted price. The machinery was then delivered to ultimate purchasers in the U.S. at the seller’s retail price, with the importer retaining the difference. The agreement specified, among other things, that the importer would buy from the foreign seller at prices to be specified by the seller. There were numerous other limitations upon the importer’s freedom of action in respect of the merchandise, such that, as the court found, “the independence of dealings, necessary to support a buyer-seller relationship was lacking, [and] the agreement in question, while cast in terms of a buyer and seller relation, was in reality a principal-agent relationship between the parties.” Most relevantly, the court found that it was not inconsistent with such an agency relation that [importer] was required to pay for machinesthat requirement was in effect a guaranty that [seller] would be paid for the machines it exported to the United States.” 61 Cust. Ct. 604.

The Dorf decision therefore supports the view that evidence of ownership does not preclude a finding that the party evidencing some aspects of ownership is also acting as the agent of another. While the Compliance Assessment Report asserted the view that ownership and risk of loss did not pass from the trading companies to POSAM, this office concludes that even if enforceable property rights were exchanged, this does not render the transfers between the trading companies and POSAM acceptable bona fide sales for the purposes of transaction value. Several Customs Headquarters Ruling Letters have examined similar situations and so concluded. See, HRL 544471 (September 6, 1990) (intermediate parties hold title for an instant, if ever, and act as agents on seller’s behalf). To the same effect is HRL 544513 (September 9, 1990), which concerns several of the same entities. In that decision Customs concluded that the fact that the intermediary may take title for a split second does not negate a finding that it was acting as an agent of the seller; the sale for exportation was between seller and purchaser in the United States.

Based on the above considerations, we find that there were no bona fide sales between POSCO and the trading companies and between the trading companies and POSAM. The circumstances do not establish the viability of these transactions for purposes of transaction value appraisement because POSAM was not participating as a buying principal in a bona fide sale for exportation. Instead, we find that it acted as POSCO’s selling agent under the Hot Band Requirements Agreement.

POSAM’s Objections to Sales under the Hot Band Requirements Agreement

As discussed previously, the Compliance Assessment Report concluded that there were sales for exportation acceptable for transaction value appraisement between POSCO and UPI under the long-term agreement. We turn now to POSAM’s objections to appraisement using the prices determined under the Hot Band Requirements Agreement.

POSAM’s other argument that requires comment concerns direct payment. [

] There can be no doubt that the steel was transferred from POSCO, via its agents, to UPI for a consideration.

The profit margins retained by POSAM and the trading companies as they make remittances to POSCO constitute selling commissions that are included in the price actually paid or payable.

Related Party Transactions

Section 402(b)(2)(B) provides that the transaction value between a related buyer and seller is acceptable if an examination of the circumstances of the sale of the imported merchandise indicates that the relationship did not influence the price actually paid or payable, or if the transaction value closely approximates values ascertained for identical or similar merchandise.

It is agreed that all the parties to these transactions (apart from three of the four Korean trading companies) are related within the meaning of section 402(g). With respect to POSCO and UPI, the audit concluded that because the CPP price formula was derived from elements beyond the control of the parties, the transactions between POSCO and UPI were conducted at arm’s length. POSAM has not indicated disagreement with this finding, but objects to the use of POSCO to UPI sales on other grounds. This office finds that the Hot Band Requirements Agreement and the circumstances surrounding its negotiation are sufficient evidence that the relatedness of POSCO and UPI did not influence the price actually paid or payable. Therefore, the relatedness of POSCO and UPI does not bar the use of sales between the two for appraisement under transaction value.


Based on a consideration of all the evidence, we find that for purposes of determining transaction value, the only bona fide sale is between UPI, the buyer, and POSCO, the seller. This finding is consistent with the terms of the Hot Band Requirements Agreement between these parties. Therefore, the price actually paid or payable is to be based on the CPP paid by UPI, determined in accordance with that Agreement, exclusive of duties and marine insurance. We further find that this is an acceptable transaction value in accordance with section 402(b)(2)(B).

We also find that POSAM and the trading companies are functioning as agents of POSCO. Because their selling commissions (profit margins) are already included in the price actually paid or payable, there should be no additions made for these amounts.

This decision should be mailed by your office to the internal advice requester no later than sixty days from the date of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Ruling Module in ACS and to the public via the Diskette Subscription Service, the Freedom of Information Act and other public access channels.


Virginia L. Brown
Chief, Value Branch

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