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HQ 562259

September 19, 2002

MAR-05 RR:CR:SM 562259 NL


Port Director
U.S. Customs Service
4735 Oakland Street
Denver, CO 80239

RE: AFR Protest No. 330701100026; US-Israel Free Trade Agreement; Appraised Value; Transaction Value; Related Parties; Computed Value

Dear Port Director:

This office has considered the application for further review of the above-referenced protest submitted on behalf of IES Electronics Industries USA, Ltd. (IES). The decision of this office follows.


The merchandise consists of a projector enclosure imported by IES. The Protestant made entry on December 11, 2000. Customs liquidated the entry on July 16, 2001, and the Protestant timely filed this Protest and Application for Further Review on August 5, 2001.

The importer claimed that the merchandise is a product or manufacture of Israel and as such qualifies for duty-free treatment under the United States-Israel Free Trade Area Implementation Act. IES is a wholly-owned subsidiary of IES Interactive Millenium LTD (IES Interactive). IES Interactive is owned by IES Electronics Industries LTD (IES LTD). The shipment to the U.S. was made on a consignment basis, with title retained by IES Interactive. IES Interactive owns the warehouse in Colorado where the imported components were stored.

At the time of entry, the importer provided an invoice. The price reflected on that invoice was the basis for appraisement of the merchandise under transaction value, pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. §1401a). Transaction value is the preferred method of appraisement, defined as the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions.

Using transaction value as the basis for the appraised value, Customs determined that the cost or value of materials produced in Israel plus direct costs of processing in Israel was substantially less than 35 percent of the appraised value of the merchandise. Accordingly, duty-free treatment under the U.S.-Israel Free Trade Agreement was denied.

Counsel for IES argues that transaction value should not have been accepted by Customs because the invoice price submitted was an “artificial and overstated price that was affected by the business relationship between IES and its Israeli parent,” and that “IES misunderstood how to calculate the appraised value.” In the alternative, Counsel asserts that computed value should have been the basis for determining appraised value. Cost and value data has been submitted said to show that under computed value appraisement the Israeli content of the merchandise is substantially greater than 35 percent of the appraised value of the merchandise.


Did Customs properly deny the Protestant’s a claim for duty-free treatment under the U.S.-Israel Free Trade Agreement?


Under the U.S.-Israel Free Trade Agreement, eligible articles the growth, product, or manufacture of Israel which are imported directly to the United States from Israel qualify for duty-free treatment, provided the sum of:
the cost or value of materials produced in Israel: plus the direct costs of processing operations performed in Israel
is not less than 35 percent of the appraised value of the article at the time it is entered. See General Note 8(b), Harmonized Tariff Schedule of the United States (HTSUS).

It appears from the record of this Protest that the merchandise was imported directly from Israel. The accuracy of the data as to materials costs and costs of processing was not disputed by Customs. The dispositive question is whether these costs are to be measured against the transaction value of the imported merchandise, as entered and as appraised by Customs, or against computed value as sought by the Protestant. We therefore consider the appropriate basis of appraised value in this case.

Validation of transaction value for related party purposes is discussed in 19 C.F.R.§ 152.103(l). That regulation states in pertinent part that:

[t]here will be related person transactions in which validation of the transaction value, using the procedures contained in §152.103(j)(2), may not be necessary. Customs may have previously examined the relationship or may already have sufficient detailed information concerning the buyer and seller to be satisfied that the relationship did not influence the price actually paid or payable. In such case, if Customs has no doubts about the acceptability of the price, the price will be accepted without requesting further information from the importer. . .

This regulation clearly indicates that Customs is not required to question the acceptability of the related party price. The importer submitted the invoice price as “the price actually paid or payable,” and this price was accepted as accurate by Customs.

Even in the event that transaction value is not accepted as a means of appraisement, computed value is not necessarily the alternative. Under the TAA the appraised value is determined by proceeding sequentially through the alternative bases of appraisement to the first such basis that can be determined. These alternative methods, listed in order of precedence for use are: transaction value of identical or similar merchandise, section 402(c) of the TAA, deductive value, section 402(d), and computed value section 402(e).

Here, the importer has not provided information regarding the use of transaction value of identical or similar merchandise pursuant to section 402(c). Before resorting to a deductive value or computed value, section 402(c) must be eliminated as a means of appraisement.

Moreover, regarding the use of computed value is appraising imported merchandise, 19 CFR §152.101(c) provides for the following:

The importer may request the application of the computed value method before the deductive method. The request must be made at the time the entry summary for the merchandise is filed with the port director . . .

There is no evidence that the importer made such an election at the time of entry.

Therefore, we conclude that Customs properly appraised the merchandise. The information submitted at the time of entry regarding transaction value was accepted by Customs, which properly appraised the merchandise on that basis. Under these circumstances, Customs has no authority to reject transaction value, and utilize computed value as the basis of appraisement.

In consequence, the Protestant failed to demonstrate that the Israeli content is not less than 35 percent of the appraised value of the merchandise at the time of entry. The protest concerning the appraisement of the merchandise and its eligibility for duty-free treatment under the U.S.-Israel Free Trade Agreement should be denied.


This Protest should be DENIED in full.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550065, dated August 4, 1993, this decision and the Customs Form 19 are to be mailed to the protestant no later than sixty 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 the 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.


Myles B. Harmon
Acting Director

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