HQ 544124: Decision on Application for Further Review of Protest No. 3004-4-000016

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 544124

                          July 12, 1989

CLA-2 CO:R:CV:V   544124 VLB

CATEGORY:  Valuation

District Director of Customs
909 First Avenue
Room 2039
Seattle, Washington  98174

RE:  Decision on Application for Further Review of Protest
     No. 3004-4-000016

Dear Sir:

     This protest was filed against your decision in the
liquidation of various entries made by Celanese Chemical Company,
Inc. (hereinafter referred to as "CCC").  The merchandise was
appraised pursuant to section 402(c) of the Tariff Act of 1930,
as amended by the Trade Agreements Act of 1979 (19 U.S.C.
1401a(c); TAA).


FACTS:

     The merchandise in question is methanol.  The methanol was
produced in Canada by Joint Venture, a party related to CCC under
section 402(g) of the TAA.  CCC acted as Joint Venture's
exclusive U.S. distributor of methanol.

     The CCC/Joint Venture transactions fall into three
categories.  Case I shipments involved direct sales of methanol
to CCC's U.S. customers.  CCC's counsel states that the Case I
shipments were appraised under transaction value using the price
that CCC paid to Joint Venture for the methanol as the price
actually paid or payable less nondutiable charges.  The importer
is not protesting the Case I appraisements.

     In the Case II shipments, CCC imported the methanol and
shipped it to CCC's storage facility at either San Pedro,
California or Richmond, California.  CCC later sold the methanol
from its inventory to unrelated third parties.  In correspondence
dated December 4, 1987, CCC's counsel conceded that there was no
transaction value for the Case II shipments because there was no
sale for export.

                              - 2 -

     You appraised the Case II shipments under section 402(c) of
the TAA, transaction value of identical or similar merchandise.
You used the transaction values established in Case I to appraise
the Case II shipments.  While CCC agrees that section 402(c) is
the appropriate appraisement method for the Case II shipments, it
argues that the applicable identical merchandise transaction
values are the Case III importations discussed below.

     In the Case III transactions, CCC allegedly purchased
methanol from Joint Venture, imported it, and then exchanged the
methanol with either Borden Chemical ("Borden") or Chembond.  The
exchange was arranged because Borden and Chembond had substantial
quantities of methanol on the Gulf Coast in Louisiana but did not
have methanol on the West Coast to serve their customers in that
area.  CCC, on the other hand, had substantial quantities of
methanol on the West Coast but did not have methanol on the Gulf
Coast to serve its customers in that area.  The three companies
determined that it would be cheaper to "swap" methanol from their
respective facilities rather than incur the considerable cost
involved in transporting the methanol to another part of the U.S.

     You determined that in Case III there was not a bona fide
sale between CCC and Joint Venture.  As a result, you appraised
the Case III shipments under section 402(c) of the TAA,
transactions value of identical or similar merchandise using the
Case I transaction values.

     CCC contends that there was a bona fide sale in the Case III
transactions.  In addition, CCC asserts that the price CCC paid
for the methanol was not influenced by the relationship between
CCC and Joint Venture.


ISSUE:

     Whether the Case II and Case III entries were properly
appraised under section 402(c) of the TAA using the transaction
values established in the Case I appraisements.


LAW AND ANALYSIS:

     The preferred method of appraising merchandise is
transaction value , which is defined in section 402(b) of the
Tariff Act of 1930, as amended by the Trade Agreements Act of
                              - 3 -

1979 (TAA) as the "price actually paid or payable" for
merchandise when sold for exportation to the U.S., plus certain
enumerated additions.  In Case II transactions, CCC's counsel
has conceded that there was no sale for exportation to the U.S.
Therefore, transaction value cannot be used to appraise the
merchandise.

     When there is no transaction value, the next basis of
appraisement in order of statutory preference is transaction
value of identical or similar merchandise under section 402(c) of
the TAA, which you used to appraise the Case II shipments.
Transaction values determined under section 402(c) of the TAA are
based on sales of identical or similar merchandise

     at the same commercial level and in substantially the
     same quantity as the sales of the merchandise being
     appraised.  If no such sale is found, sales of
     identical merchandise or similar merchandise at either
     a different commercial level or in different
     quantities, or both, shall be used, but adjusted to
     take account of any such difference . . . If . . . two
     or more transaction values for identical merchandise. .
     . are determined, such imported merchandise shall be
     appraised on the basis of the lower or lowest of such
     values.

     CCC alleges that the Case III transactions provide valid
transaction values that should serve as the values for appraising
the Case II shipments under section 402(c) of the TAA.  CCC
alleges that in the Case III transactions, there is in fact and
in law, a sale for exportation between Joint Venture and CCC.
The National Import Specialist (NIS) in New York states that he
believes that the CCC/Joint Venture transaction involved a
transfer of property for consideration.  Therefore, the NIS
concluded that the Case III shipments involved bona fide sales.

     We agree that the Case III transactions constitute bona fide
sales, i.e. passage of title for consideration.  Moreover Article
4.01 of the United States Sales and Marketing Agreement ("Sales
Agreement") executed between CCC and Joint Venture on December
16, 1981, states that "[t]itle and risk of loss to Methanol will
pass from the Joint Venturers to CCC (a) upon delivery to the
ship's flange at the Kitimac Terminal [Canada] for Methanol to be
shipped by sea, and (b) F.O.B. the Plant for all other Methanol.
Based on this language, we hold that there was a sale for
exportation to the U.S.

                              - 4 -

     CCC and Joint Venture are related parties.  Therefore,
Customs must examine the acceptability of the transaction value
between CCC and Joint Venture.  Section 402(b)(2)(B) of the TAA
states the following:

     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 between such buyer and
     seller did not influence the price actually paid or
     payable;. . .

     In determining whether the relationship between the parties
influenced the price of the goods, the buyer and the seller must
prove that although they are related, they buy and sell from one
another as if they are not related.  The parties may also use a
series of test values as a basis of comparison to the transaction
value.  If the transaction value closely approximates any one of
the test values, it will be accepted.

     In this case, CCC argues that the circumstances of the
methanol sale indicate that CCC's relationship to the Joint
Venture did not influence the price.  Section 6.01 of the Sales
Agreement discussed previously contains a formula for the
calculation of the price actually paid or payable.  The contract
states that CCC will pay Joint Venture the "Net Sales Price" less
5% of the Net Sales Price which is CCC's distribution fee.

     Section 6.04 of the Sales Agreement and an amendment to the
agreement dated March 24, 1983, contains the formula for the Case
III exchange transactions. The Net Sales Price is the average
price received by CCC on sales of methanol from its Gulf Coast
facilities to unrelated customers in the month preceding the
importation, plus a freight or location differential, less CCC's
distribution expenses.  The freight differential accounts for the
freight savings previously discussed.

     CCC contends that the formula in the Sales Agreement is an
acceptable transaction value under section 152.103(a)(1), Customs
Regulations (19 CFR 152.103(a)(1)), which states that

     The price actually paid or payable will be 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 formula, such
     as the price in effect on the date of export in the
     London Commodity Market.


                              - 5 -

     In addition, CCC cites Headquarters Letter Ruling 542261,
TAA #19, dated March 11, 1981, to support its position.  In TAA
#19, Customs held that the related parties' use of a formula
based on the price of methanol "posted" weekly in the Chemical
Marketing Reporter was an acceptable transaction value.  CCC
asserts, and the NIS agrees, that CCC's pricing formula is
similar to the "posted price" system in TAA #19.   Based on the
information before us, we also agree that the CCC/Joint Venture
formula is an acceptable transaction value because the formula is
based on CCC's sales to unrelated parties.

     However, you and the NIS contend that the 5% distribution
fee is a dutiable selling commission.  Under section
402(b)(1)(B) of the TAA "selling commission[s] incurred by the
buyer with respect to the imported merchandise" (emphasis added)
are added to the transaction value.  In this case the alleged
selling commission is not incurred by CCC, the buyer.  Rather,
the reduction is incurred by the seller, Joint Venture, in the
form of a lower price that it receives for the methanol, not in
the form of a selling commission.

     In sum, we hold that the formula in the Sales Agreement for
determining the Net Sales Price is an acceptable transaction
value for the Case III transactions.  As a result, we must
determine whether the Case II shipments, appraised under
transaction value of similar or identical merchandise , should be
based on the Case I transactions or the Case III transactions.

     The Case I sales prices are higher than the Case III prices.
CCC's counsel stated in a letter dated July 28, 1988, that the
differences in the sales prices are attributable exclusively to
quantity differences.  Counsel explained that

     [f]or 1983 (the year in which the protested entries
     were made) the Joint Venture sold a total of 25,400,000
     gals. of methanol to CCC in Case III transactions,
     i.e., those in which CCC subsequently exchanged the
     methanol for fungible product owned by Borden
     (21,100,000) and Chembond (4,300,000 gals.)  In
     contrast, in the so-called direct sales of methanol
     (Case I), the Joint Venture in 1983 shipped the
     following quantities to U.S. customers of CCC-

          Reichold                 1,700,000 gals.
          Chevron                    400,000 gals.
          Union                      300,000 gals.
          Chemcentral                200,000 gals.

     Under transaction value of identical and similar merchandise
the transaction value must be based, if possible, on the same
                              - 6 -

commercial level and quantity as the sales of the merchandise
being appraised.  Therefore, if the Case II shipments involved
large quantity sales similar to the Case III quantities, then the
Case III transaction values are the appropriate appraisement
values.  On the other hand if the Case II shipments were smaller
shipments like the shipments listed on page 5 of this ruling,
then the Case I transaction values are the correct appraisement
values.

HOLDING:

     The Case II transactions should be appraised under section
402(c) of the TAA, transaction value of identical or similar
merchandise.  If the Case II shipments have small quantities
similar to the Case I shipments, then the appropriate transaction
values for appraisement are the Case I transaction values.  If
the Case II shipments involved large quantities such as those in
the Case III shipments, the Case II appraisements should be based
on the Case III transaction value.

     The Case III shipments should be appraised under transaction
value using the price actually paid or payable between CCC and
Joint Venture.

     The protest should be granted.  A copy of this decision
should be attached to the Form 19, Notice of Action, to be sent
to the protestant.



                              Sincerely,



                              John Durant, Director,
                              Commercial Rulings Division