HQ 544645

July 16, 1991

VAL CO:R:C:V 544645 DPS

CATEGORY: Valuation

District Director

Portland, Oregon

RE: Application for Further Review of Protest No.

2904-9-000092; invoice prices vs. contract prices

negotiated prior to exportation

Dear Sir:

The subject protest and application for further review

concerns the appraisement of automobiles manufactured in

Japan by Fuji Heavy Industries Ltd. (FHI) and imported by

Subaru of America, Inc. (SOA). In addition to the subject

protest filed in Portland, Oregon, counsel has advised that

identical protests have been filed with Customs at Baltimore,

Boston, Jacksonville and Los Angeles.

FACTS:

The protests seek review of the appraisement of certain

imported automobiles at the final prices actually paid by SOA

to FHI. SOA purchased and imported the subject automobiles

pursuant to a temporary pricing arrangement under which the

commercial invoice for each shipment reflected tentative

prices which were to be finalized by negotiation. The

parties further agreed that if the final prices were less

than the tentative prices, FHI would reimburse SOA for the

difference. Counsel states that the final prices were set

prior to importation and, therefore, pursuant to 19 C.F.R.

152.103(a)(1), the goods should be appraised at the final

prices actually paid, rather than the higher invoice prices.

In support of SOA\'s position, counsel has provided the

following information. In 1989, SOA first imported two new

1990 model year Subaru automobiles, the \"Loyale\" and the

\"Legacy,\" manufactured by FHI in Japan. FHI owns slightly

less than 50% of all of the outstanding shares of SOA, the

balance being publicly held. SOA purchased the automobiles

on an FOB basis, including packing and foreign inland freight

charges. The commercial invoices required payment within

five days, and SOA paid the invoices as they became due. SOA

was the importer of record and paid all customs duties.

Prior to shipment, counsel represents that SOA and FHI

expressly agreed that the prices stated on the commercial

invoices accompanying the initial importations would be

tentative, but that SOA would remit payment in accordance

with the invoice terms. The parties agreed to establish

final prices by negotiation as soon as possible. The parties

further agreed that any differences between the tentative and

final FOB prices on the subject shipments would be reimbursed

by the obligated party (i.e., by FHI if the final pricing was

less than the tentative, and by SOA otherwise).

These agreements are evidenced by documentation

submitted by counsel which consist of correspondence from FHI

explaining the arrangement described above. The memorandum

dated January 9, 1989, from FHI General Manager to President

of Fuji U.S.A. (FUSA), explains the temporary pricing of the

1990 model year Loyale automobiles, and indicates that Loyale

shipments would commence in January and includes a schedule

headed: \"90 MY Loyale: Tentative FOB Price.\" A second

memorandum, dated February 14, 1989, from FHI Manager, First

Sales Secretary, to President of FUSA explains the temporary

pricing arrangement for the 1990 Legacy models. This

correspondence indicates that shipments would commence in

February and includes a schedule entitled \"90 MY Legacy

Tentative FOB Prices.\" For both the Loyale and Legacy

models, the invoice prices were initially set at the

\"Tentative FOB Prices\" stated on the schedules referred to

above.

As stated in the correspondence submitted by counsel,

these prices were temporary until the final FOB pricing was

settled. Subsequently, the appropriate party would

compensate the other for any difference between the temporary

and the final prices. SOA entered the subject automobiles at

the tentative invoice prices.

Further documentation in the form of an affidavit from

the President of SOA, explains the tentative pricing

arrangement and states that SOA and FHI agreed to final

prices for the Loyale models during meetings in New Jersey on

February 8, 1989 and that the parties agreed to the final

prices for the Legacy models in Japan on February 28, 1989.

For both models the final prices are less than the tentative

prices at which the automobiles had been shipped and entered.

The commercial invoices were changed to state the lower,

final prices in May, 1989. A memorandum dated March 1, 1989

from the FHI General Manager to the President of FUSA

confirms that SOA and FHI had agreed to the final prices for

the Legacy models and encloses a schedule setting forth those

prices. Another memorandum from FHI to SOA sets forth in

detail the amount of the differences between the tentative

prices and the final FOB prices for both the Legacy and

Loyale models. Attached to the correspondence are pricing

schedules for each of the various Loyale and Legacy models

shipped to the U.S. The schedules set forth the tentative

prices originally charged for each model (as reflected on the

commercial invoices), the final FOB prices subsequently

agreed upon, the difference between the two prices and a

complete listing of all of the automobiles shipped to the

U.S. under the tentative pricing agreement, arranged by dates

of shipment. In total, these documents reflect the

following:

a\. Legacy - 20,758 cars were shipped to the

U.S. at the higher, tentative FOB

prices, resulting in an overpayment of

\$xxxxxxxx by SOA to FHI.

b\. Loyale - 7,638 cars were shipped to the

U.S. at the higher, tentative FOB prices,

resulting in an overpayment of \$xxxxxxxx

These figures were confirmed by SOA on May 8, 1989 by

correspondence from the SOA Finance Department to FHI. FHI

reimbursed SOA in the total amount of this overpayment by

wiring the funds to SOA\'s account on or around May 10, 1989.

ISSUES:

\(1\) Whether the transaction value of the subject

imported automobiles is the tentative (higher) FOB price

reflected on the commercial invoice, or the final (lower) FOB

price which the protestant claims was the result of price

negotiations prior to shipment.

\(2\) Whether the documentation submitted adequately

supports the protestant\'s contention that the new, lower

prices had been agreed upon prior to the exportation date of

the subject merchandise.

LAW & ANALYSIS:

For the purpose of this response, we assume that

transaction value, the preferred method of appraisement, is

applicable. Transaction value is defined in section

402(b)(1) of the Tariff Act of 1930, as amended by the Trade

Agreements Act of 1979 (19 U.S.C. 1401a(b); TAA) as the

\"price actually paid or payable for the merchandise when sold

for exportation to the United States,\" plus amounts for the

five enumerated statutory additions in 402(b)(1). The

\"price actually paid or payable\" is more specifically defined

in 402(b)(4) as: \"The total payment (whether direct or

indirect\...) made, or to be made, for imported merchandise by

the buyer to or for the benefit of, the seller.\" In order to

establish transaction value one must know the identity of the

seller and the amount actually paid or payable to him.

Section 402(b)(4)(B) of the TAA provides that \"any

rebate of, or other decrease in, the price actually paid or

payable that is made or otherwise effected between the buyer

and seller after the date of importation shall be disregarded

in determining transaction value (emphasis added).\"

Assuming that transaction value is the proper method of

appraisement under the facts presented by this protest, we

must determine whether the price reduction between the

\"tentative\" and \"final\" FOB prices was a post-importation

rebate or the result of price negotiations prior to

importation.

The documentation submitted by the protestant supports

SOA\'s contention that FHI and SOA agreed, prior to

exportation, that the prices stated on the commercial

invoices for the 1990 model year Legacy and Loyale models

were tentative. Although SOA paid these prices, both parties

understood that the final prices would be set by

negotiations. For the Loyale models, SOA and FHI agreed to

the final prices on February 8, 1989; for the Legacy models,

the parties set the final prices on February 28, 1989.

As indicated on the schedule of protested entries

submitted with this protest, all of the automobiles that are

the subject of this and the referenced protests were exported

on or after the dates in February, 1989, when the parties set

the final prices. Prior to exportation, the parties

concluded the negotiations and agreed to the final prices but

were unable to change the invoices until two months later

(May 1989). The seller, FHI, subsequently refunded to the

buyer, SOA, differences between the final prices and the

tentative invoice prices used for shipment and Customs entry.

HOLDING:

In accordance with the rationale set forth above, we are

satisfied that the documentary evidence submitted with the

subject protest supports the protestant\'s position that the

new, lower prices had been agreed upon prior to the

exportation of the subject merchandise. The final prices

actually paid by SOA to FHI were set prior to the time of

exportation and, therefore, those prices represent the price

actually paid or payable for the imported automobiles when

sold for exportation to the U.S.

Accordingly, you are hereby directed to grant the

protest. A copy of this decision should be attached to Form

19, Notice of Action, to be sent to the protestant. Any

pending protests concerning the same parties, identical

merchandise and issues, should be treated in a manner

consistent herewith.

Sincerely,

John Durant, Director

Commercial Rulings Division