November 19, 2003
RR:IT:VA 548371 EK
Bureau of Customs & Border Protection
40 S. Gay St.
Baltimore, Maryland 21202
RE: Application for Further Review of Protest No. 1303-03-00180;
Porsche Cars North America, Inc.
Dear Port Director:
This is in regard to the Application for Further Review noted-above dated July 2, 2003, protesting the appraisement of one entry, consisting of one automobile imported into the United States, and submitted on behalf of Porsche Cars North America, Inc. (hereinafter referred to as PCNA). The vehicle was appraised pursuant to transaction value, 19 U.S.C. 1401a(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), based upon the price actually paid or payable by the U.S. customer to the Porsche authorized dealer in the United States.
This office issued Headquarters Ruling Letter (HQ) 547197 dated August 22, 2000, regarding the transactions between PCNA and Porsche AG, the German engineering company that designs and manufactures Porsche automobiles. The ruling held that automobiles purchased pursuant to the “American Tourist Program” (hereinafter referred to as Tourist Program) may not be appraised pursuant to the transaction value between PCNA and Porsche AG. In an information letter dated June 13, 2002, 548121, this office indicated that the finding in HQ 547197 remained binding.
In response to your request for confidentiality, we are granting confidential treatment to the values, pricing policies, and methods of doing business, as the protestant has requested. Such information is not contained in this letter.
PCNA regularly imports automobiles manufactured by Porsche AG. PCNA and Porsche AG are related within the meaning of 19 U.S.C. 1401a(g). The automobiles are appraised pursuant to the transaction value method at the price that PCNA pays Porsche AG. PCNA is the exclusive American importer and distributor of the Porsche automobiles. Pursuant to a contract between Porsche AG and PCNA, PCNA is only authorized to sell the vehicles it purchases from Porsche AG to U.S. authorized dealers for their resale to customers in the United States. PCNA sells all of its imported vehicles in the U.S. through its authorized dealers. Porsche AG has similar exclusive contracts with other related companies in other countries to sell the vehicles to those companies in those countries.
The protestant states that when PCNA orders vehicles from Porsche AG, the vehicles are either ordered for “stock” sales to dealers or are “made to order” for a dealer’s customer. The transactions are processed in the same manner and at the same prices. If a particular model is ordered for “stock” sales with certain options, it is processed in the same manner as the “made to order” vehicles for a dealer’s customer with the same options. The vehicles manufactured for the “Tourist Program” are usually “made to order” automobiles but in some cases, a customer may choose to purchase a vehicle ordered for “stock”. If a customer orders a vehicle pursuant to the “Tourist Program”, then the customer in the U.S. can temporarily use the vehicle in Europe prior to its exportation. The protestant indicates that these automobiles are all processed in the same fashion and at the same price, i.e., the vehicles manufactured for “stock” sales, “made to order” vehicles, and vehicles manufactured pursuant to the “Tourist Program”. It is the appraisement of this vehicle, i.e., subject to the “Tourist Program” that is at issue in this protest.
The protestant indicates that although PCNA and Porsche AG are related parties, they deal with one another on an arm’s length basis, free from non-market influence in the sale of vehicles and parts. The protestant states that Customs’ Regulatory Audit Branch has confirmed that for valuation purposes, pursuant to 19 U.S.C. 1401a(b), transaction value is the appropriate method of appraisement for vehicles purchased by PCNA from Porsche AG (A Customs Compliance Assessment Report dated June 30, 1998 was submitted). However, the audit report did not specifically address vehicles imported pursuant to the “Tourist Program”.
Pursuant to the “Tourist Program”, the protestant states that the vehicles are manufactured by Porsche AG for PCNA in compliance with U.S. standards, including both Environmental Protection Agency (EPA) and Department of Transportation (DOT). After production and temporary delivery in Europe to the ultimate U.S. purchaser, the vehicle must be returned to Porsche AG within a specified time for export to the United States. The vehicle is then imported by PCNA, delivered to the authorized dealer, and then to the ultimate purchaser in the United States. Under the “Tourist Program”, the protestant states that the process regarding the production and sale of the merchandise remains the same as those vehicles that are purchased by PCNA and shipped directly to the United States, i.e. the “stock” and “made to order” vehicles described above. The only difference is the temporary use of the vehicle by the U.S. customer in Europe before PCNA subsequently imports the vehicle into the U.S. with the rest of its normal inventory. The vehicle is made specifically for the U.S. market and the delivery in Europe is temporary, as the vehicle must be returned for importation into the U.S. pursuant to the contractual provisions between the U.S. customer and the dealer. The program requires the U.S. customer to redeliver the vehicle to the factory in Europe within a limited and specified time period (maximum amount of 12 months) of the temporary factory delivery, or face a substantial penalty.
Regarding the automobile at issue, on December 20, 2002, the Porsche Authorized dealer in Morong-Falmouth Maine, electronically ordered a 2003 Turbo Coupe automobile as a stock vehicle for its sales inventory. from PCNA. The order was accepted and PCNA electronically ordered the vehicle from Porsche AG. The order was confirmed on December 23, 2002. On January 20, 2003, the ultimate customer in the United States placed an order with the Porsche dealer in the U.S. for a Tourist Delivery 2003 Turbo Coupe with certain options. The protestant has submitted a copy of the tourist delivery agreement signed by the ultimate customer. At this point, the Porsche dealer allocated the previously ordered stock vehicle from PCNA to this particular customer. On January 24, 2003, the Porsche dealer placed an electronic change order with PCNA to change the order from “stock” to “tourist delivery” and included the options specified by the ultimate customer. PCNA electronically changed its order with Porsche AG on the same day. Porsche AG confirmed receipt and acceptance of the change order. The price of the vehicle remained the same during the transition from “stock” vehicle to “tourist delivery” vehicle, with modifications for changes in equipment at standard prices, and the addition of tourist charges.
On March 17, 2003, the vehicle was temporarily delivered to the ultimate U.S. customer in Germany for the customer’s use for two weeks. In compliance with the written contract, the ultimate customer returned the vehicle on March 24, 2003, to Porsche AG. The vehicle was delivered to a freight forwarder for exportation to the United States, and arrived in the United States on April 4, 2003. After entry, the vehicle was delivered to the Porsche dealer, who subsequently delivered the automobile to the ultimate purchaser in the U.S.
What is the proper method of appraising the subject automobile that was temporarily used abroad prior to its exportation to the United States?
LAW AND ANALYSIS:
Initially, we note that the protest was timely filed pursuant to 19 U.S.C. 1514(c). 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; 19 U.S.C. 1401a). The primary method of appraisement is transaction value, which is defined as the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus certain enumerated additions.
In Nissho Iwai American Corp. v. United States, 982 F. 2d 505 (Fed. Cir. 1992) (“Nisho Iwai”) 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 issue of the proper sale upon which to base transaction value in a three-tiered distribution arrangement involving a foreign manufacturer, a middleman, and a U.S. purchaser. In both cases, the middleman was the importer of record. Both courts held that the manufacturer’s price, rather than the middleman’s price, was valid as long as the transaction between the manufacturer and the middleman fell within the statutory provisions for valuation. The courts explained 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 non-market influences and involving goods “clearly destined for export to the United States.”
We note that as a general matter, Customs presumes that the importer’s sales price is the basis of transaction value. In General Notice entitled, “Determining Transaction Value in Multi-Tiered Transactions,” T.D. 96-87, 30/31 Cust. Bull. 52/1, January 2, 1997, Customs explained:
Customs presumes that the price paid by the importer is the basis of
transaction value and the burden is on the importer to rebut this presumption.
In order to rebut this presumption, in accordance with the Nissho Iwai standard,
the importer must prove that at the time the middleman purchased, or contracted
to purchase, the goods were “clearly destined for the United States” and the
manufacturer (or the seller) and middleman dealt with each other at arm’s length.”
In order for the sale transaction between Porsche AG and PCNA in the “Tourist Program” to qualify as a sale for exportation to the United States, it must be negotiated at arm’s length, and the automobile must be clearly destined for export to the United States at the time of the sale. We disagree with the protestant’s assertion that the automobile in this instance is clearly destined for the United States at the time of the sale, and continue to adhere to our prior conclusion that there is a contingency of diversion so that the vehicle may not be exported to the United States. Our legal analysis regarding this issue has not changed, and is set forth in HQ 547197 dated August 22, 2000. The fact that Porsche has amended the contract between the ultimate U.S. purchaser and the U.S. dealer and specifically requires the customer to return the vehicle to Porsche AG within a specified time frame or incur substantial penalty, does not alter our conclusion regarding contingency of diversion with respect to the automobile. There is no sale for exportation to the United States between Porsche AG and PCNA with respect to the automobiles purchased through the “Tourist Program”.
However, we agree with the protestant’s assertion that the sale between the U.S. ultimate purchaser and the Porsche authorized dealer in the U.S. is also not a sale for exportation to the United States within the meaning of section 402(b) of the TAA. The same “contingency of diversion” exists with respect to this sale as well. The sale between the ultimate U.S. customer and the Porsche dealer in the United States may not form the basis of transaction value.
There is no transaction value available with respect to the automobiles that are purchased pursuant to the “Tourist Program”. Absent a valid transaction value, the next basis of appraisement must be used, i.e., transaction value of identical or similar merchandise pursuant to section 402(c) of the TAA.
Transaction value of identical or similar merchandise is defined as follows:
The transaction value of identical merchandise, or of similar merchandise,
is the transaction value . . . of imported merchandise that is (A) with respect
to the merchandise being appraised, either identical merchandise or similar
merchandise, as the case may be; and (B) exported to the United States at
or about the time that the merchandise being appraised is exported to the
Identical merchandise and similar merchandise are then defined in section 402(h)(2) and (4) of the TAA, respectively. - If there is a transaction value of identical or similar merchandise available upon which to appraise the automobiles purchased pursuant to the “Tourist Program”, then it must be utilized.
The protestant indicates that the subject automobile imported pursuant to the Tourist Program is identical in all respects to the same model vehicle with the same options exported from Germany and imported into the United States during the same time period. The base price of the vehicle is the same and each of the options have the same price regardless of whether the vehicle is delivered through the Tourist Program or regular stock inventory. As long as the vehicle at issue is either “identical” to, or “similar” to, vehicles that are imported by PCNA from Porsche AG, and “exported to the United States at or about the time that the merchandise being appraised is exported to the United States”, then the use of transaction value of identical or similar merchandise is proper.
In addition, please note that in order for transaction value of identical or similar merchandise pursuant to section 402(c) of the TAA to be applicable, it must be demonstrated that the transaction value of the merchandise under consideration is fully acceptable under section 402(b) of the TAA, in order to be applied as the transaction value of identical or similar goods pursuant to section 402(c). See, T.D. 91-15 dated March 29, 1991.
Customs properly rejected the use of transaction value using the sale between Porsche AG and PCNA in the valuation of the vehicle pursuant to the “Tourist Program”. However, if there is a previously accepted transaction value of identical or similar merchandise pursuant to section 402(c) available to appraise the subject vehicle, then it is proper to use section 402(c) of the TAA in appraising the vehicle.
Therefore, the protest should be DENIED in part and APPROVED in part. In accordance with Section 3A11(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries 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 make the decision available to Customs & Border Protection personnel, and to the public on the Customs & Border Protection Home Page on the World Wide Web at www.cpb.gov.
Virginia L. Brown, Chief