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HQ W563485

September 10, 2007

VAL-02 OT:RR:CTF:VS 563485 NL


Port Director
U.S. Customs and Border Protection

198 West Service Road

Champlain, New York 12929

Attn: Thomas Bechard, Import Specialist

RE: AFR Protest Nos. 0712-04-100003; 0712-04-100005; 0712-04-10051; Related Parties; Test Values; VWP v. United States; Transaction Value of Identical and Similar Merchandise

Dear Port Director:

This is our decision on the application for further review (AFR) of the above-referenced protests.


The protesting importer, Audio Plus Services, Inc. (Audio Plus) challenges the basis of appraisement for the merchandise. Audio Plus made entry using transaction value as shown on the commercial invoices. The seller in Canada, Plurison, Inc., (Plurison) is under common ownership with Audio Plus and is acknowledged to be a related party within the meaning of §402(g)(1) of the valuation statute (19 USC §1401a(g)(1)).

Following requests for information and discussions with the owners of Audio Plus and Plurison, CBP port officials concluded that the “as entered” transaction value between these related parties was not an acceptable basis for appraisement. CBP found that Audio Plus did not exercise independent pricing or marketing power, acting as a mere agent for Plurison. Although Audio Plus was able to submit evidence of payments to Plurison, none of the payments could be linked to particular invoices. CBP concluded that Audio Plus did not have independent pricing authority, such that there were no bona fide sales upon which to base transaction value. Alternatively, even if there were bona fide sales, CBP found that the information provided by Audio Plus was insufficient in that records were not kept in accordance with Generally Accepted Accounting Principles (GAAP). Thus CBP considered the price paid or payable between Audio Plus and Plurison to be one that could not be determined; an indeterminable price could not be the basis of transaction value. CBP appraised the merchandise using the §402(f) “fallback” method, relying upon the invoice values of sales by the French manufacturer of the merchandise, Focal.JMLab (Focal) to Audio Plus. Focal sells the merchandise in question to both Audio Plus and to Plurison, but is not related to either.

The entries were liquidated on October 17, 2003 and January 9, 2004. Timely protests followed. In its supporting memorandum of May 18, 2004, the protestant’s principal claim is that transaction value between Plurison and Audio Plus should be accepted because, pursuant to §402(b)(2)(B), these amounts closely approximate the transaction value of identical merchandise sold by Focal to an unrelated buyer (Audio Plus) in the United States. Entry papers and invoices for three shipments from Focal directly to Audio Plus were submitted as evidence of test values which the valuations as entered by Audio Plus for the sales to it by Plurison in this protest were said to closely approximate.


Under what method should the merchandise be appraised?


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 (19 U.S.C. 1401a; TAA). The preferred method of appraisement of imported merchandise for customs purposes is transaction value.

Transaction value is the price actually paid or payable for the merchandise when sold for export to the United States, plus certain enumerated additions. 19 U.S.C. §1401a(b)(1). 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, insurance, 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. 19 U.S.C §1401a(b)(4)(A).

In determining transaction value, the price actually paid or payable is considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula, such as the price in effect on the date of export in the London Commodity Market. The word “payable” refers to a situation in which the price has been agreed upon, but the actual payment has not been made at the time of importation. 19 CFR § 152.103(a).

Pursuant to §402(b)(2)(A)(iv), the transaction value of imported merchandise shall be acceptable only if the buyer and the seller are not related, or if the buyer and the seller are related, the transaction value is acceptable under §402(b)(2)(B). A transaction value between related parties is acceptable under §402(b)(2)(B) if 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 the transaction value, deductive value or computed value of identical or similar merchandise, also known as “test values”. In this protest, Audio Plus argues that CBP should apply the “test values” method and find that the prices actually paid or payable by Audio Plus to the unrelated manufacturer/seller in France, Focal, for identical merchandise closely approximate the transfer prices paid to Plurison. Exhibits 1, 2 & 3 to the Audio Plus submission of May 18, 2004, consist of the entry and commercial documentation for entries to be considered as test values. It is pointed out that in comparison to the prices Audio Plus paid to Focal, Plurison charged Audio Plus an additional 16 to 18 percent to cover warehousing and other costs.

Before determining whether a price meets the circumstances of sale or test values analysis, there must be a price paid or payable. The record in the instant protest shows that various payments passed from Audio Plus to Plurison in periodic lump sums. When requested by CBP, the protestant was unable to show by invoices or otherwise how the payments were linked to particular quantities of merchandise. The submissions in support of the protest do not clarify the nature or purpose of these payments. Therefore we agree with CBP port officials that the available documentation (which was not in accordance with GAAP), made determination of the actual price paid or payable for specific merchandise impossible. In such circumstances there can be no transaction value appraisement.

We note also that the record shows apparent payments between the parties that may have been selling commissions or proceeds of subsequent resale, but whose purposes were not explained either to CBP port officials or in subsequent submissions. While not the basis for our decision here, we note that CBP also may reject transaction value appraisement if any of the mandatory additions to the price paid or payable (packing costs, selling commissions, assists, royalties or license fees, proceeds of subsequent resale) are not properly accounted for. If the status of such mandatory additions cannot be determined by sufficient information, for any reason, transaction value under §402(b) is to be treated as a value that cannot be determined. See 19 U.S.C. 1401a(b)(1)(E).

Given that transaction value appraisement is not acceptable, the ruling of Court of Appeals for the Federal Circuit in VWP of America, Inc. v. United States, 117 Fed Appx. 113 (Fed. Cir. 2004), is on point with regard to the protestant’s argument for analysis of test values. In VWP, following a series of administrative and trial decisions involving remands, the CAFC ruled that the question of using test values to support related party transaction value became moot when certain commissions under related party transaction value could not be determined by sufficient information. 117 Fed. Appx. 113, 120. In other words, under the statutory scheme, unless there is sufficient information to support transaction value between related parties, there is no occasion to consider whether the related party price is acceptable by analysis of test values. The logical consequence is that appraisement must then move to the next succeeding method under §402.

The transaction value of identical merchandise and similar merchandise pursuant to §402(c) is the next available basis of appraisement. The prices for sales by Focal, the French producer, to Audio Plus, given as examples in protestant’s exhibits 1, 2 & 3 of the May 18, 2004 submission, would appear to qualify as transaction values for identical goods. CBP has not disputed the protestant’s representation that the merchandise is identical to that which Audio Plus buys from Plurison. The commercial level and quantities of these sales appear to be in accordance with the requirements of §402(c)(2). The prices used in import transactions involving Audio Plus and Focal as set forth in Exhibits 1, 2 & 3 appear to represent the transaction value of identical and similar merchandise. Assuming these are previously accepted transaction values, this appears to be the appropriate basis of appraisement under the statutory scheme. CBP officials at the port of importation should appraise the merchandise accordingly, subject to adjustments for commercial level or quantity if supported by sufficient information.


Transaction value cannot be determined for the entries under protest because no price actually paid or payable was established by sufficient information. There being no transaction value, there is no basis to on which to compare the related party prices with other transaction values under a “test values” analysis. In the absence of transaction value, appraisement should be by reference to the transaction value of identical and similar merchandise.

You are instructed to deny the protests in part, but to allow appraisement on the basis of the transaction value of identical or similar merchandise using prices submitted by the protestant as proposed “test values”. In accordance with the Protest/Petition Processing Handbook (CIS HB, June 2002, pp. 18 and 21), 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 in accordance with the decision must be accomplished prior to mailing of the decision. No later than sixty days from the date of the decision the office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.


Myles B. Harmon, Director

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