HQ 546069

August 1, 1996

RR:IT:VA 546069 KCC

CATEGORY: Valuation

Port Director

U.S. Customs Service

c/o Protest and Control Section

6 World Trade Center, Room 761

New York, New York 10048-0945

RE: Application for Further Review of Protest 1001-95-100871;

Goya cheese; transaction value; bona fide arm\'s length sale;

sale for export to the United States; Nissho Iwai American

Corp.; Synergy Sport International, Ltd.; J.L. Wood; HRLs

545144, 545271, 545360, 545648, 544775, 543633, 545474, and

545254

Dear Port Director:

This is in regard to the Application for Further Review of

Protest 1001-95-100871 concerning the proper transaction value,

§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(b),

of Goya cheese imported by Orlando Food Corporation. Information

presented at a meeting on April 12, 1996, and contained in

additional submissions dated February 14, and May 23, 1996, were

taken into consideration in rendering this decision.

FACTS:

The imported merchandise was appraised using transaction

value, based on the sale between Orlando Food Corporation

(\"Orlando\") and Vonk Diary Products of Holland (\"Vonk\"). In a

protest timely filed on February 2, 1995, Counsel for Orlando,

the importer, contends that the transaction value should be based

on the alleged sale between Vonk and the cheese manufacturer,

Rokishkio Suris of Lithuania (\"Rokishkio\").

Rokishkio and Vonk entered into an exclusive supply contract

(\"contract\") in March 1994. Vonk, the buyer, agreed to buy all

quantity of Goya cheese produced by Rokishkio, the seller. See,

§1.1 and §1.3 of the contract. The exclusivity clause states:

Seller produces Goya exclusive as per previous contract for

Vonk/USA.

Additionally, §4.7 (Payments) of the contract states:

The Buyer will do the utmost to pay in time - terms as

agreed - as well as to load cheese in time as Seller

has exclusively contract with Buyer, Seller never has

the right to sell to other Buyers unless written

approval of the Buyer (emphasis added).

Rokishkio agreed to manufacture the Goya cheese according to the

technical production sheet and to the qualifications as outlined

in the contract. Vonk has final quality control at its bonded

warehouse in Holland. We note that the contract calls for

payment in U.S. dollars and that the price clause (§2.4) states

that \"\[i\]f the United States Government reduces the present duty

on Goya cheese import difference will be split up for both

parties.\"

Counsel states that the price paid by Vonk for the Goya

cheese is comparable to the price of other cheese produced in

Lithuania and is largely based on the market price of milk plus

the factory\'s normal overhead and profit. Counsel states that

the contract provides that Vonk purchases all the Goya cheese

produced by Rokishkio. Counsel maintains that the exclusivity

clause in the contract requires that Rokishkio shall produce Goya

cheese only for Vonk for export to the United States. Moreover,

Counsel states that pursuant to §4.7 of the contract, Rokishkio

is prohibited from producing or supplying this Goya cheese to

third parties or any other market. Based upon projected

production, Vonk then secures purchase contracts from Orlando and

other U.S. importers. Vonk supplies the factory with customized

cryovac bags. Counsel states that the cheese is packaged for the

U.S. market before it leaves the Rokishkio factory.

After production, the Goya cheese is shipped via truck from

Rokishkio to Holland under a TIR Carnet and entered into a bonded

warehouse. Counsel submitted copies of TIR Carnet Documents,

Dutch Customs Document for Storage In-Bond (form IM-7), and Dutch

Exportation Document (Form T-1). Vonk conducts quality control

at its bonded warehouse to ensure that the cheese meets the

contract specifications. Counsel states that if the cheese does

not meet the contract quality, it can be returned to Rokishkio

for sale to process cheese factories in the Baltic States,

Russia, Bell Russia and Ukraine, it can be sold by Vonk for

processing on the domestic market, or it is destroyed. §5.5 of

the contract states that Rokishkio has the right to sell non-specified
grade cheese to Vonk at the set contract price. Vonk

then exports all the \"specified-grade\" Goya cheese purchased from

Rokishkio to its U.S. customers against the standing orders.

Counsel stated in its February 14, 1996, submission that there is

no financial incentive for Vonk to sell the \"non-specified grade\"

cheese in the domestic market, because Vonk would pay

prohibitively high tariffs and as a result the cheese becomes too

expensive for the European market as compared to other Gouda or

Edam cheese. Counsel further stated that as of February 14,

1996, the time period which covers the entries under protest, no

cheese has been sold in the European market. Counsel states that

to date all the cheese produced by Rokishkio is \"specified-grade\"

Goya cheese.

Counsel for Orlando has submitted the contract between

Rokishkio and Vonk and a sample of the cryovac bag in which the

Goya cheese is packaged for our examination. The bag states that

the Goya cheese is exported by Vonk, Holland. It also sets forth

the nutritional facts required by the U.S. Department of Health

and Human Services, Food and Drug Administration. Additionally,

Counsel has submitted Orlando purchase orders for \"Goya Cheese -

Lithuanian\" dated April 14, and May 31, 1994, Vonk invoices to

Orlando for Goya cheese dated June 6 and 21, 1994, and Rokishkio

invoices to Vonk for Goya cheese dated June 8 and 10, 1994, as

evidence that the sale for exportation occurred between Rokishkio

and Vonk for the entries at issue.

ISSUE:

Whether the evidence submitted establishes that the

transaction between Rokishkio and Vonk determines the \"price

actually paid or payable\" for the imported Goya cheese.

LAW AND ANALYSIS:

§402(b)(1) of the TAA provides, in pertinent part, that the

transaction value of imported merchandise is the \"price actually

paid or payable for the merchandise when sold for exportation to

the United States\" plus enumerated additions. The \"price

actually paid or payable\" is defined in §402(b)(4)(A) of the TAA

as 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\...) made, or to be made, for the

imported merchandise by the buyer to, or for the benefit of the

seller.\"

You appraised the merchandise using transaction value, based

on the sale between Orlando and Vonk. It is your position that

the transaction value is not based on the sale between Rokishkio

and Vonk because the Goya cheese is not sold for export at the

time of the contract between those parties. You note that the

contract states Vonk will buy all the Goya cheese from the

manufacturer, Rokishkio, but you state that the contract does not

establish that Vonk will purchase the Goya cheese and sell it to

U.S. producers. Based on projected production from the

manufacturer, Vonk then secures purchase contracts from Orlando

and other U.S. importers. You state that this is confirmed by

Counsel\'s statement that a \"very small amount of cheese\...is sold

off in Europe.\" Thus, it is your position that the sale for

exportation occurred between Orlando and Vonk.

Counsel contends that this transaction involves a three-tiered situation
involving a U.S. purchaser/importer (Orlando),

middleman (Vonk), and primary-level seller (Rokishkio). Thus,

Counsel for Orlando reasons that two sales took place, one

between Rokishkio and Vonk and the other between Vonk and

Orlando. Counsel for Orlando maintains that the sale for

exportation took place between Rokishkio and Vonk.

In Nissho Iwai American Corp. v. United States, 16 C.I.T.

86, 786 F. Supp. 1002, reversed in part, 982 F.2d 505 (1992), and

Synergy Sport International, Ltd. v. United States, Slip Op. 93-5

(C.I.T., Jan. 12, 1993), the U.S. Court of Appeals for the

Federal Circuit and the Court of International Trade,

respectively, addressed the proper dutiable value of merchandise

imported pursuant to a three-tiered distribution arrangement

involving a foreign manufacturer, middleman and a United States

purchaser. In both cases, the middleman was the importer of

record. In each case, the court held that the price paid by the

middleman/importer to the manufacturer was the proper basis for

transaction value. Each court further stated that in order for a

transaction to be viable under the valuation statute, it must be

a sale negotiated at arm\'s length, free from any nonmarket

influences, and involving goods clearly destined for the United

States.

We note that in the context of filing an entry, Customs Form

7501, an importer is required to make a value declaration. As

indicted by the language of CF 7501 and the language of the

valuation statute, there is a presumption that transaction value

is based on the price paid by the importer.

In accordance with the Nissho Iwai and Synergy decisions and

our own precedent, we presume that transaction value is based on

the price paid by the importer. See, Headquarters Ruling Letter

(HRL) 545144 dated January 19, 1994, HRL 545271 dated March 4,

1994, HRL 545360 dated May 31, 1994, and HRL 545648 (IA 10/94)

dated August 31, 1994. In further keeping with the courts\'

holdings, we note that in those situations where an importer

requests appraisement based on the price paid by the middleman to

the foreign manufacturer (and the importer is not the middleman),

the importer may do so. However, it will be the importer\'s

responsibility to show that such price is acceptable under the

standard set forth in Nissho Iwai and Synergy. That is, the

importer must present sufficient evidence that the alleged sale

was a bona fide \"arm\'s length sale,\" and that it was \"a sale for

export to the United States,\" within the meaning of 19 U.S.C.

§1401a.

First, we must examine whether the sale between Rokishkio

and Vonk was a bona fide \"arms\'s length sale.\" For Customs

purposes, the word \"sale\" generally is defined as a transfer of

ownership in property from one party to another for a

consideration. J.L. Wood v. United States, 62 CCPA 25, 33 C.A.D.

1139 (1974). While J.L. Wood was decided under the prior

appraisement statute, Customs adheres to this definition under

the TAA. The primary factors to consider in determining whether

there has been a transfer of property or ownership are whether

the alleged buyer has assumed the risk of loss, and whether the

buyer has acquired title to the imported merchandise. See, HRL

544775 dated April 3, 1992, and HRL 543633 dated July 7, 1987.

Also relevant is whether, in general, the roles of the parties

and circumstance of the transaction indicate that the parties are

functioning as buyer and seller. See, HRL 545474 dated August

25, 1995. We find that the submitted evidence does establish a

bona fide \"arm\'s length sale\" between Rokishkio and Vonk.

Commercial documents relating to the sales, such as, the

exclusive supply contract and commercial invoices from Rokishkio

to Vonk, were submitted. Although no documents were submitted to

show that Vonk paid Rokishkio for the Goya cheese, we note that

the exclusive supply contract established the payments to be made

for the Goya cheese. We find that these documents establish that

a transfer of ownership of the Goya cheese for payment occurred

between Rokishkio and Vonk.

Although we find a bona fide sale between Rokishio and Vonk,

the evidence submitted does not support the position that the

sale between Rokishkio and Vonk was a sale for export clearly

destined to the United States. First, as discussed above, the

cheese is not shipped to the U.S. customer from the factory but

first to Holland for quality testing by Vonk. Although this fact

does not preclude a finding that the cheese was clearly destined

to the U.S. when sold to Vonk, this is one factor to consider

along with all the other evidence. See, HRL 545254 dated

November 22, 1994, which held that even though the goods were

shipped in bond through Canada, they were clearly destined to the

U.S. based on all the evidence, including the fact that the

imported merchandise bore the U.S. customer\'s logos.

Second, the language of the contract between Vonk and

Rokishkio does not support such a finding. The exclusivity

clause in the contract states that the \"\[s\]eller (Rokishkio)

produces Goya exclusive as per previous contract for Vonk/USA.\"

Vonk\'s interpretation of the exclusivity clause is that

\"Rokishkio Factory produces only Goya cheese for Vonk for export

to the States and will not produce or supply this goya cheese to

third parties.\" Counsel\'s January 2, 1996, submission. Counsel

states that it is impractical and financially prohibitive to

export the Goya cheese directly to the U.S. from the Lithuanian

factory because without quality control testing non-grade Goya

cheese will often be shipped to the U.S. Counsel emphasizes that

Vonk must perform quality control testing in its bonded warehouse

in Holland to avoid rejection of the Goya cheese by Orlando and

other importers. Although the parties may have intended the

contract to be for the exclusive sale of Goya cheese destined to

the U.S., it is not so written. The exclusivity clause does not

clearly indicate that the cheese was destined for the U.S. The

contract is an exclusive supply contract between Rokishkio and

Vonk. §1.1 of the contract states \"\[t\]he Seller have produce and

sell and the Buyer have to buy \'Goya\' cheese\...\" and §4.7 of the

contract states that \"\...Seller has exclusively contract with

Buyer, Seller never has the right to sell to other Buyers unless

written approval of the Buyer.\" However, the contract does not

clearly establish that the sale of Goya cheese between Rokishkio

and Vonk was a sale for export destined for the United States.

Additionally, not all the Goya cheese is clearly destined

for the United States when shipped to Holland. §1.3 of the

contract states that \"\[t\]he Buyer agrees to buy all quantity of

\'Goya\' cheese produced by the Seller.\" The cheese is shipped to

Vonk\'s bonded warehouse where it is subject to quality testing.

The specified-grade Goya cheese is then shipped to the United

States. Counsel submits that the contract is only for specified-grade
cheese which is to be shipped to the United States.

However, the contract appears to provide for both specified-grade

and non-specified grade Goya cheese. §5.5 of the contract states

that Rokishkio has the right to sell non-specified grade Goya

cheese to Vonk at the set contract price. Furthermore, Counsel

indicates that Vonk is permitted to sell \"non-specified grade\"

Goya cheese. Counsel advises that to date this has not occurred;

all the cheese produced by Rokishkio has met the \"specified-grade.\"
The fact that to date no cheese has ever been rejected

is irrelevant because the issue is whether the cheese is clearly

destined for the United States when sold to Vonk. The terms of

the contract provide for the purchase of specified-grade and
non-specified grade Goya cheese. The specified-grade Goya cheese is

presumably destined for the U.S., whereas the non-specified grade

cheese, as stated by Counsel, can be sold off in the European

market. Thus, the contract does not solely provide for the sale

of specified-grade Goya cheese destined for the U.S.

We note that the purchase sequence is some evidence that the

Rokishkio/Vonk sale was a sale for export to the United States.

Counsel submitted documents demonstrating that Vonk secures a

purchase order for the Goya cheese before the cheese leaves

Rokishio. These documents were purchase orders from Orlando to

Vonk dated April 14, and May 31, 1994, for Lithuanian Goya

Cheese, Vonk invoices to Orlando dated June 6, and 21, 1994, for

prompt shipment of the Goya cheese, and the Rokishkio invoices to

Vonk dated June 8, and 10, 1994. Additionally, the fact that the

Goya cheese is cryovac packed by Rokishkio in plastic bags which

identify Vonk as the exporter of the Lithuanian Goya cheese and

contain the nutritional labeling information as required by the

U.S. Department of Health and Human Services, Food and Drug

Administration is some evidence that the Goya cheese was sold for

exportation to the United States. However, Rokishkio invoices to

Vonk make no reference to Orlando or otherwise indicate that the

cheese is clearly destined to the U.S. and the bags do not

identify the name or address of the U.S. purchaser. Also, as

noted above, some of the packaged cheese which is ordered may

never reach the United States because it may be found to be
non-specified grade. The Goya cheese shipped from Rokishkio may or

may not be destined for the U.S. depending on its quality.

Finally, the invoices from Rokishkio to Vonk, the TIR

Carnets and freight documents do not indicate that the Goya

cheese is destined for the U.S. The invoices do not show terms

of sale and do not indicate that the Goya cheese was destined for

the U.S. Additionally, the TIR Carnets indicate that the Goya

cheese was transported from Lithuania and entered Holland in bond

under Customs supervision to Vonk\'s bonded warehouse. Thereafter

the shipping documents show shipment from Holland to the U.S.

None of the evidence submitted establishes that the Goya cheese

was clearly destined for the U.S. at the time it was exported

from Lithuania.

Based on the above considerations, we find that insufficient

evidence has been presented to establish a sale for export to the

United States between Rokishkio and Vonk in order to overcome the

presumption that transaction value is based on the price Orlando

paid Vonk.

HOLDING:

Based on the evidence presented, the price between Rokishkio

and Vonk does not constitute the price actually paid or payable

for purposes of determining the transaction value of the Goya

cheese.

The protest should be DENIED. In accordance with Section 3

A(11)(b) of Customs Directive 099 3550-065 dated August 4, 1993,

Subject: Revised Protest Directive, this decision, together with

the Customs Form 19 should be mailed by your office 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 the decision. Sixty days

from the date of the decision the Office of Regulations and

Rulings will take steps to make the decision available to customs

personnel via the Customs Rulings Module in ACS and the public

via the Diskette Subscription Service, Freedom of Information Act

and other public access channels.

Sincerely

Acting Director

International Trade Compliance

Division