HQ 547035

August 18, 1999

RR:IT:VA 547035 LR

**CATEGORY:** Valuation

Port Director

U.S. Customs Service

Baltimore. Md.

RE: Internal Advice Request; Valuation of Titanium Sponge from Russia;
sale for exportation; clearly destined

Dear Director:

This is in response to your memorandum dated December 16, 1997, received
in this office on April 1, 1998, requesting internal advice concerning
the level of sale to be used in determining the appraised value of
Russian Titanium Sponge imported by Interlink Metals and Chemicals, Inc.
(importer). The importer's comments are set forth in a letter dated
October 23, 1997 to your office in response to a Notice of Action.[^1]
Following a meeting at Headquarters with the importer and the importer's
counsel on January 27, 1999, the importer provided additional
information by letter dated February 12, 1999. We also received comments
from the Chief, Metals & Machinery Branch, National Commodity specialist
Division. We regret the delay in responding.

**FACTS:**

The imported product is titanium sponge (Ti sponge) produced in Russia
by Avisma Titanium-Magnesium Works (Avisma) and imported on July 1, 1997
pursuant to a multi-tiered transaction. The transaction involves two
middlemen, the importer's related Swiss company, Interlink Metals and
Chemicals SA (Interlink SA), and TMC Trading International (TMC), an
unrelated company located in Ireland. You indicate that the importer
purchases the Ti sponge from Interlink SA, Interlink SA purchases the Ti
sponge from TMC; and, TMC obtains the Ti sponge from Avisma.

The importer made entry based on the transaction price between TMC and
Interlink SA. However, your office informed the importer via a CF 29
that you intend to reappraise the merchandise based on the transaction
between the importer and Interlink SA. The importer disagrees with your
proposed appraisement. It asserts that transaction value is properly
based on the transaction between TMC and Interlink SA because this is a
sale for exportation to the United States under the principles set forth
in the court decision *Nissho Iwai American Corp. v. United States*, 16
C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F.2d 505 (1992). The
importer contends that the imported Ti sponge was clearly destined
throughout the transaction to a purchaser in the U.S.

The basic facts are not in dispute. You indicate that the importer
contracts to supply Ti sponge to a U.S. purchaser, generally a large
amount, to be shipped over a span of several months. The importer
contracts with Interlink SA to supply them with the necessary Ti sponge,
also shipped over several months. Interlink SA contracts to purchase the
Ti sponge from TMC. The final destination of the material is not
revealed to TMC. Consequently, no U.S. destination appears on any paper
work passing between TMC and Interlink SA. In fact, the documents
indicate that the final destination is a warehouse in Loviisa, Finland.
TMC obtains the Ti sponge from Avisma. According to the importer, TMC
does not stock pile previously purchased material, but makes purchases
from Avisma as needed.[^2] TMC sells the material to Interlink SA and
the material is delivered to a warehouse in Loviisa, Finland. Interlink
SA sells the Ti sponge to the importer and begins sending partial
shipments of material to the importer in the U.S. The terms of sale are
"CIF Baltimore". The importer arranges for delivery of the Ti sponge to
the ultimate U.S. purchaser, RMI Titanium Company (RMI) in this case.
You indicate that payment for the Ti sponge is made from each entity in
the string of transactions.

The importer's position is that transaction value should be based on the
sale between TMC and Interlink SA since the shipments are generated by
the purchase orders originally received by Interlink NY from RMI. The
importer claims that its paper chain supports this position even though
the documents between Interlink SA and TMC do not indicate the final
destination to be the United States.

It is the position of your office that the evidence does not establish
that the imported Ti sponge was clearly destined to the United States at
the time Interlink SA purchased it from TMC. Specifically, you note that
there is no documentation connected with the sale between TMC and
Interlink SA indicating that a U.S. destination had been established by
the time the transaction had been consummated and that no documentation
clearly states that the material is destined for the United States. You
also note that the material does not appear to be produced to any
specific U.S. standards, nor in accordance with any unique Interlink
specifications. Finally, you note that there is no easily followed chain
of sales, clearly linked to show the material was purchased by Interlink
SA expressly to fulfill a prior existing sale to the U.S. to Interlink
NY.

You advise that you are treating this entry as a "test case" and intend
to apply our advice to all similar Interlink NY entries.

You have provided copies of the entry documents and other documents
submitted by the importer in support of its claims. The entry
documentation includes:

1\. An undated Pro-Forma invoice between TMC and Interlink SA for 67,389
KGs of Ti sponge, 12-70 mm in size, grade TG-100.

2\. Invoice #102/384 between TMC and Interlink SA dated June 10, 1997
for 93,740 Kgs of Ti sponge, grade TG-100 and TG-90 showing the final
destination to be "in warehouse Loviisa, Finland".

3\. Invoice #102/370 between TMC and Interlink SA dated June, 1997 for
397,300 Kgs of Ti sponge, grade TG-100 showing the final destination to
be "in warehouse Loviisa".

4\. Invoice #SII01306 between Interlink SA and Interlink NY dated June
15, 1997 for 2,649 Kgs of Ti sponge, size 12-25 mm, grade TG-100,
shipped from Loviisa, Finland.

5\. Invoice #SII01307 between Interlink SA and Interlink NY dated June
15, 1997 for 64,740 Kgs of Ti sponge, size 12-70 mm, grade TG-90/100,
shipped from Loviisa, Finland.

6\. Packing list dated June 13, 1997 from the Oosterom & Zoon Finland OY
warehouse in Loviisa, Finland.

Interlink submitted additional supporting evidence consisting of:

1\. A purchase order and sales contract between Interlink NY and the
U.S. purchaser RMI dated 12/17/96 and 12/19/96 for 3,000 Metric Tons of
Ti sponge, 12x25 mm, 2x12 mm and 12x70 mm in size, grade TG 90/100 to be
delivered from December 1996 through December 1997.

2\. A purchase contract between Interlink SA and Interlink NY dated
01/16/97 for 6, 050 MT of Ti sponge in sizes of 2-12 mm, 12-25 mm and
12-70 mm, grade TS-90/100/110, to be shipped from January 1997 through
December 1997.

3\. A purchase contract between TMC and Interlink SA dated 01/20/97 for
5,590 MT of Ti sponge in sizes of 2-12 mm, 12-25 mm and 12-70 mm, grade
TG 90/100/110 and TDG 90/100, to be shipped January 1997 through April
1997.

4\. Affidavits from Interlink SA and TMC attesting that the two
companies are not related and deal with each other on an arms' length
basis.

5\. Payments records from Interlink SA to TMC for invoice #'s 102/384
and 102/370, and payment records from Interlink NY to Interlink for
invoice #'s SII01307 and SII01306.

**ISSUE:**

Whether the importer has established that transaction value for the
imported Ti sponge should be based on the transaction between TMC and
Interlink SA.

**LAW AND ANALYSIS:**

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 (TAA) codified at 19 U.S.C. §1401a. The preferred
method of appraisement under the TAA is transaction value, defined as
"the price actually paid or payable for the merchandise when sold for
exportation to the United States," plus certain enumerated additions.

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*, 17 C.I.T. 18 (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.

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.

For purposes of this decision we assume that the transaction between
Interlink SA and TMC is a bona fide sale. Nonetheless, the evidence
submitted does not support the position that this transaction was a sale
for exportation to the United States. First, there is no dispute that
the Ti sponge was shipped to a warehouse in Finland before being shipped
to the United States. While this fact does not preclude a finding that
the merchandise was clearly destined to the U.S., it is an important
factor must be considered along with the other evidence.

Thus, in HRL 546069, August 1, 1996, notwithstanding the fact that the
purchasing sequence, the product descriptions and quantities set forth
in the commercial documents provided some evidence that the imported
cheese was destined for the United States at the time of the first sale,
and that the packaging had the name of the U.S. purchaser and that the
cheese was labeled in accordance with U.S. requirements, Customs
determined that based on the totality of the evidence, the imported
cheese was not clearly destined to the United States. In reaching this
conclusion, Customs pointed to the fact that the cheese was shipped from
the factory to Holland for quality testing before being shipped to the
U.S., that the terms of the contract provided that the cheese could be
rejected if not of sufficient quality, and that none of the commercial
documents pertaining to the first sale referenced the ultimate U.S.
destination of the cheese. Cf HRL 545254, November 22, 1994 (goods
shipped in bond through Canada were clearly destined to the U.S. where
there the transaction documents indicated that the goods were destined
to the U.S. and the merchandise bore the logo of the U.S. purchaser).

Although the importer alleges that the transaction between Interlink SA
and TMC is in fulfillment of the RMI contract, as in HRL 546069, there
is no indication on any of the commercial documents between Interlink SA
and TMC indicating that the Ti sponge was for exportation to the United
States. None of the purchase orders, invoices, shipping documents, etc.
pertaining to this transaction makes any mention that the goods were for
a specified U.S. purchaser or references any of the documents pertaining
to the sale to the U.S. purchaser. In addition, there is no indication
on the merchandise itself that the it was for exportation to the United
States. For example, unlike in HRL 546069, there is no indication that
the goods were packaged for the U.S. or met any special U.S. labeling
requirements. When coupled with the fact that the commercial documents
indicate that the Ti sponge was to be shipped to Finland and that it was
shipped to Finland, we find that the evidence does not establish that
the Ti sponge was clearly destined for exportation to the U.S. at the
time of the Interlink SA-TMC sale.

While the complete purchasing sequence, product descriptions and
quantities on the submitted documents when viewed together provide some
evidence that the imported Ti sponge was intended for a specified U.S.
purchaser, as in HRL 546069, this evidence is not enough to overcome the
contrary evidence that the merchandise was destined for exportation to
another country, in this case, Finland.[^3] In fact, there is less
evidence of a sale for exportation here than in HRL 546069 due to fact
that there is no indication here that the Ti sponge was packaged for the
U.S. or met special U.S. labeling requirements. In sum, we find that the
evidence submitted does not establish that the Ti sponge was clearly
destined for exportation to the U.S. at the time Interlink SA purchased
them from TMC.

Based on the above considerations, we find that insufficient evidence
has been presented to establish a sale for exportation to the United
States between TMC and Interlink SA in order to overcome the presumption
that transaction value is based on the price Interlink paid Interlink
SA.[^4]

HOLDING:

The evidence submitted is insufficient to establish that the Interlink
SA-TMC was a sale for exportation to the United States and to rebut the
presumption that transaction value is properly based on the price the
importer paid.

You are to mail this decision to the internal advice applicant no later
than 60 days from the date of this letter. On that date, the Office of
Regulation and rulings will make the decision available to Customs
personnel, and to the public on the Customs Home Page on the World Wide
Web at www.customs, ustreas.gov, by means of the Freedom of Information
Act, and other methods of public distribution.

Sincerely,

Thomas L. Lobred

Chief, Value Branch

[^1]: HRL 547046 pertains to a AFR/protest filed by the importer
    pertaining to imported Russian magnesium under somewhat similar
    circumstances.

[^2]: You indicate that TMC has previously been described by the
    importer as the exclusive export sales agent for Avisma.

[^3]: The submitted documentation does not match up exactly. It appears
    that the subject importation represents a partial shipment of
    materials that Interlink SA ordered from TMC and that the pro forma
    invoice submitted upon entry was extracted from two actual full
    quantity invoices between TMC and Interlink SA. However, there is no
    common reference number on any of the various documents and it is
    difficult to match up the quantities and establish the chain of
    sales. However, even if the paper trail was clearer, our findings
    would be the same.

[^4]: This decision does not address the question of whether the related
    party transaction is an acceptable transaction value pursuant to 19
    U.S.C. 1401a(b)(2)(B).