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HQ H005222

June 13, 2007



Michele E. McGuire
Deloitte Tax LLP
50 Fremont Street
San Francisco, CA 94105

RE: Transaction value; Nissho Iwai; Sale for Export

Dear Ms. McGuire:

This is in response to your letter dated January 10, 2007, requesting a binding ruling on behalf of Nishimoto Trading Co. Ltd. (“NTC US”), as to the proper method of appraisement pursuant to 19 U.S.C. 1401a for certain imported goods. At your request, a tele-conference was held on April 20, 2007. Your submission of May 21, 2007 is part of the record in this case.


NTC US imports Asian food products into the U.S. The food products are purchased by Nishimoto Trading Co. Ltd (“NTC Japan”), the parent company of NTC US, from various unrelated Asian manufacturers. NTC US purchases the food products from NTC Japan.

You state that NTC US and NTC Japan operate as separate legal entities with independent profit centers. Each entity has its own employees and conducts its own billing and financial operations. NTC Japan contracts with various food manufacturers in Asia for sales in Japan as well as for the export of goods to the U.S., the European Union, and Australia. You state that NTC Japan purchases, owns and then re-sells this merchandise, either to its subsidiaries or to unrelated distributors or customers. NTC Japan charges a mark-up on sales to NTC US.

You state that NTC Japan does not act as a buying agent for NTC US. You state that no buying agency agreement exists between NTC US and NTC Japan. You state that NTC US does not have authority to control NTC Japan’s conduct with regard to the transactions between NTC Japan and the foreign manufacturers.

NTC Japan’s freight forwarder consolidates the U.S.-bound shipments from the multiple manufacturers in its warehouses located in Japan prior to export. Occasionally, a manufacturer may ship the goods directly to NTC US, bypassing the freight forwarder.

You provided three examples of past import transactions. The three separate transactions involve: 1) almond chocolate made in Japan by Meiji (a Japanese manufacturer); 2) strawberry fruit chew confections made in Taiwan by Morinaga (a Taiwanese manufacturer); and 3) seasoning made in Japan by Daisho.


Whether the transactions between the foreign manufacturer and the importer’s parent corporation may be used to determine the transaction value of the merchandise.


The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in 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. 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 five enumerated statutory additions. 19 U.S.C. 1401a(b). In order for imported merchandise to be appraised under the transaction value method, it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States. We will assume for the purposes of this ruling that transaction value is the appropriate basis of aprraisement.

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 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. 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.”

As a general rule, CBP 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 Treasury Decision (“T.D.”) 96-87, 30 Cust. Bull. 52/1 (January 2, 1997). 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 exportation to the United States and that the manufacturer and middleman dealt with each other at arm’s length. This documentary evidence must satisfy the requirements set forth in Nissho Iwai. CBP stated in T.D. 96-87 that it is looking for “a complete paper trail of the imported merchandise showing the structure of the entire transaction.” In addition, to establish whether the transaction is “at arm’s length,” the ruling request must state the relationship, if any, of the parties.

For Customs purposes, the term “sale” as articulated by the court in J.L. Wood v. United States, 62 CCPA 25, 505 F.2d 1400 (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. CBP 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, CBP 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 Headquarters Ruling Letter (“HRL”) 545709, dated May 12, 1995, and HRL 545474, dated August 25, 1995.

According to your submission, the importer and the importer’s parent corporation in this case are not related to the Asian manufacturers. You state that the purchase orders and invoices show that the goods are ordered, sold to the middleman (NTC Japan) and then sold to the importer, with corresponding payments to each. You state that NTC Japan accounts for the merchandise it purchases as inventory on its books. You also have included in your submission an e-mail from NTC Japan to NTC US dated August 11, 2006, which states that “when merchandise arrive (sic) at warehouse of forwarder, NTC –J takes title to the merchandise and assume the risks of loss prior to on board for shipment.”

We have reviewed the above documents and find that they are not satisfactory to determine whether NTC Japan takes title to the merchandise and assumes the risk of loss. Carrying merchandise in inventory is not evidence of ownership. For instance, a company may include goods on consignment in inventory. Further, the e-mail is self-serving and carries no documentary weight. We find that the submitted evidence is insufficient to support the claim that transaction value should be based on the alleged sale between the foreign food manufacturers and NTC Japan. Accordingly, the proper basis of appraisement will be the price actually paid or payable by NTC US to NTC Japan.


Based on the evidence presented, the importer has not established that the manufacturer’s price to the middleman may be used as a basis of appraisement consistent with the standard set forth in Nissho Iwai. Accordingly, the price between NTC Japan and the unrelated manufacturer may not constitute the price actually paid or payable for the purposes of determining the transaction value of the imported food. Instead, the price actually paid or payable by the importer, NTC US, to NTC Japan will be the proper basis of appraisement.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs official handling the transaction.


Monika R. Brenner
Chief, Valuation & Special Programs Branch

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