HQ 544547: Application for Further Review of Protest No. -------------

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 544547

                              August 7, 1990

VAL CO:R:C:V  544547 ML

CATEGORY:  Valuation

District Director
Mobile, Al  36601

RE:  Application for Further Review of Protest No. -------------

Dear Sir:

     This protest and application for further review was filed
against your appraisement decision in the liquidation of various
entries made by --------------------------------importer of
electrical conduit pipe.  The merchandise was purchased from
their related ----------- company, ---------------------.  The
merchandise was appraised 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(b)).

FACTS:

     The merchandise in question is electrical conduit pipe.  The
items were sold by a ------------company, -----------------------
(hereinafter referred to as the "seller").  The importer of the
merchandise is ------------------ Company (hereinafter referred
to as the "importer").  The parties are related within the
meaning of section 402(g) of the TAA.

     The merchandise was entered at its invoiced CIF value with
the proper deductions made for ocean freight and insurance.  The
entries were liquidated pursuant to transaction value, section
402(b) of the TAA.

     The importer asserts that the merchandise was
inappropriately appraised under transaction value and that the
proper basis of appraisement should be deductive value as found
in section 402(d) of the TAA.  He states that the relationship
between the parties influenced the price.  The importer also
claims that the transactions are not arms-length in which the
price is established in a manner consistent with that of
unrelated parties in the industry.

     If deductive value is found to be the proper basis of
appraisement, the protestant contends that the merchandise should
be free of duty under the Generalized System of Preferences
(GSP).  In this regard, the importer has submitted cost
information which indicates that the sum of the cost of materials
produced in ----------, plus the direct costs of processing
operations performed there, exceeds 35% of the proposed deductive
value of the merchandise.

ISSUE:

     (1)  Whether transaction value is the applicable basis of
appraisement for merchandise sold between related parties.

     (2)  Whether the merchandise is entitled to duty-free
treatment under the GSP.

LAW AND ANALYSIS:

     The issue involves whether transaction value was properly
used to appraise the imported merchandise.  The transaction value
of imported merchandise is defined in section 402(b) as "the
price actually paid or payable for the merchandise when sold for
exportation to the United States," plus amounts for the items
enumerated in section 402(b)(1).  The term "price actually paid
or payable" is defined in section 402(b)(4)(A) as:

          ...the total payment...made, or to be made, for
          imported merchandise by the buyer to, or for the
          benefit of, the seller.

     The relevant provision with regard to related parties is
section 402(b)(2)(B) which 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
influences the price of imported merchandise, if it is shown that
the buyer and seller, albeit related, buy and sell from one
another as if they are not related, this indicates that the price
is not influenced by the relationship between the parties, and
appraisement pursuant to transaction value is proper.  If the
price is determined in a manner which is consistent with the
normal pricing practice of the industry, it is considered not to
have been influenced by the relationship between the parties.

     The determination that the "price actually paid or payable"
is influenced by the relationship between a related buyer and
seller is done on a case-by-case basis.  The importer points to
TAA #61 in support of his position.  In that case, Customs
rejected the use of transaction value between related parties.
The evidence in that case, taken as a whole, established that the
relationship between the parties influenced the price.

     The protestant argues that he unilaterally decided the price
of the merchandise.  He states that under ----------- law the
manufacturer was exempt from taxes so that the importer set a
price for the merchandise that would transfer a substantial
amount of profits to his related manufacturer.  Based upon the
evidence presented, we do not believe that the relationship
influenced the price.  From our perspective, ----------- tax law,
rather than the relationship between the parties was the reason
for the "price actually paid or payable" for the imported
merchandise.

     The protestant correctly points out, that Customs, not the
importer, has the responsibility to appraise imported
merchandise.  Section 500(a), as amended by the TAA (19 U.S.C.
1500(a)), states:

          "The appropriate Customs officer shall, under rules and
          regulations prescribed by the Secretary-
          (a)  appraise merchandise by ascertaining or estimating
          the value thereof, under section 1401a of this title,
          by all reasonable ways and means in his power, any
          statement of cost or costs of production in any
          invoice, affidavit, declaration, or other document to
          the contrary not withstanding."

     In the instant case, Customs officials never suggested that
the prices between the importer and the manufacturer were
suspect.  Prior to losing their GSP status, the invoice unit
values submitted to Customs were done under transaction value for
these same related parties.  At the time of entry, the "price
actually paid or payable" between the related parties was
submitted to Customs by the importer and accepted by Customs.
There is no evidence that this related party transaction does not
meet the requirements of transaction value under section
402(b)(2)(B) of the TAA.  Therefore, there is no basis for
rejecting transaction value and proceeding through the remaining
bases of appraisement.

     Under the GSP, eligible products of a designated beneficiary
developing country (BDC) which are imported directly into the
United States qualify for duty-free treatment if the sum of the
cost or value of the materials produced in the BDC plus the
direct costs of processing performed in the BDC is at least 35%
of the article's appraised value at the time of its entry into
the United States.  See section 10.176(a), Customs Regulations
(19 CFR 10.176(a)).

     ---------- is a BDC, and the merchandise is classified for
tariff purposes in item 688.30, Tariff Schedules of the United
States (TSUS), which is a GSP-eligible provision.  There appears
to be no dispute that the merchandise was imported directly to
the United States from ----------.  Therefore, it remains only to
consider whether the conduit pipe satisfies the GSP 35% value-
content requirement.  The cost information prepared and submitted
by the importer indicates that the sum of the cost of materials
produced in ---------- plus the direct processing costs
represents less than 35% of the transaction value of the
merchandise.  Therefore, as the merchandise does not satisfy this
requirement, it may not receive duty-free treatment under the
GSP.

HOLDING:

     In light of the foregoing, it is our conclusion that
transaction value pursuant to section 402(b) of the TAA was the
proper basis of appraisement.  There is no authority to reject
transaction value under the circumstances.  Moreover, as the
merchandise does not meet the GSP 35% value-content requirement,
it is not entitled to free entry under this program.

     Accordingly, you are directed to deny the protest in full.
A copy of this decision should be attached to Form 19, Notice of
Action, to be sent to the protestant.

                                   Sincerely,



                                   John Durant, Director
                                   Commercial Rulings Division