HQ 545920: AFR of Protest No. 1001-4-102675; sale for exportation; NisshoIwai; presumption that price paid by importer is basis oftransaction value not overcome; inconsistencies between visaed andcommercial invoices; quota; T.D. 86-56; discrepancies betweencommercial and visaed invoices

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 545920

                          July 25, 1996



VAL R:C:V 545920 CRS

CATEGORY: Valuation

Port Director
U.S. Customs Service
JFK International Airport
Building 77
Jamaica, NY 11430

RE:  AFR of Protest No. 1001-4-102675; sale for exportation; Nissho
Iwai; presumption that price paid by importer is basis of
transaction value not overcome; inconsistencies between visaed and
commercial invoices; quota; T.D. 86-56; discrepancies between
commercial and visaed invoices

Dear Sir:

     This is in reply to an application for further review of the
above-referenced protest, dated April 15, 1994, filed by Bel-Aire
Knitworks, Inc. (the "protestant").  A letter in support of
protestant's position, dated November 23, 1994, was submitted by
counsel.  On January 23, 1996, counsel met with members of my staff
to discuss this matter. Subsequently, counsel made an additional
submission under cover of a letter dated February 6, 1996.  We
regret the delay in responding.

FACTS:

     The protest concerns the appraised value of three entries of
women's sweaters, made in the People's Republic of China by Shantou
S.E.Z. Yuhua Knitwear Co., Ltd.  (the "manufacturer"), and
purchased and imported by the protestant pursuant to a three-tiered
distribution system.  The other party to this transaction was Royal
Mandarin Express Company (the "middleman") of Hong Kong. 
Protestant has advised that none of the parties to the transaction
are related.

     Protestant contends that the imported merchandise should be
appraised on the basis of the manufacturer's price.  In support of
this contention, counsel has submitted copies of:  the protestant's
purchase orders to the middleman; the middleman's purchase orders
to the manufacturer; the manufacturer's invoices to the middleman;
the middleman's invoices to the protestant; a receipt from the
middleman for goods purchased; a bill of lading and invoice from
the shipper to the protestant for freight costs from Hong Kong; and
three visaed invoices bearing the stamp of the Harbin branch of the
Ministry of Foreign Economic Relations and Trade.  In the case of
two of the visaed invoices, the exporter was China National
Textiles Import/Export Corporation; in respect of the third, the
exporter was Ningxia Textiles Import and Export Company.  The terms
of sale governing the manufacturer-middleman sale were FOB China;
the terms applicable to the sale between the middleman and the
protestant were FOB Hong Kong.

     Your office has expressed concern that the information
submitted by the protestant is insufficient to establish that the
manufacturer-middleman sale is the correct basis of appraisement,
particularly as it relates to the issue of quota charges and the
question of whether the merchandise was clearly destined for
exportation to the U.S.  In this regard, you note that the Chinese
government, through the China Textile and Silk Garment
Import/Export Commercial Association (the "Textile Association")
has issued regulations governing the allocation of quota and that
companies seeking to acquire quota must conform to these
regulations.

     The regulations which govern all Chinese quota transactions are
issued and administered by the China Textile and Silk Garment
Import/Export Commercial Association (the "Textile Association") on
behalf of the Ministry of Foreign Economic Relations and Trade
(MOFERT), the agency responsible for negotiating trade policy and
quota category restraints on behalf of the Chinese government.  In
accordance with the regulations, designated quota categories are
annually opened for public tender; however, only export firms that
are members of the Textile Association and are authorized by MOFERT
to export textiles and apparel may submit tenders for quota
categories.  In order to submit a bid for quota, firms are required
to submit a standard tender application form stating, inter alia, the
classification, quota category, quantity, and export price of the
goods.  Article 7 of the regulations provides further that successful
tenderers must sign a formal business contract with their foreign
clients within three months of the opening of tender date.  The price
specified in the contract may equal or exceed the bidding price, but
cannot be less than the bidding price.  Once a tender contract is
awarded, its provisions may not be altered.

     Accordingly, you requested that the protestant provide copies
of certain documents in order to demonstrate that quota was
obtained in accordance with the Textile Association regulations. 
Protestant maintains that these documents are not necessary to
determine whether the sale between the manufacturer and the
middleman is the correct basis of appraisement; accordingly, the
protestant has not furnished these documents.

     You have also advised that the documentation submitted
contains certain discrepancies between the prices stated on the
commercial invoices as compared with those reflected on the visaed
invoices.  Furthermore, copies of certain invoices referred to on
the stamped, visaed invoice, although requested, were not provided
to Customs.  Specifically, visaed invoices nos. 594890 and 593801
contain references to two additional invoices, nos. 93025 and
93046, that relate to this transaction.  These invoices were
requested by your office but were not provided to Customs.

ISSUE:

     The issue presented is whether the protested entries should be
appraised on the basis of the price paid by the middleman to the
manufacturer or the price paid by the protestant to the middleman.

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 (the "TAA"; 19 U.S.C.  1401a). 
The preferred basis 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,
to the extent not already included, certain statutorily enumerated
additions thereto.  19 U.S.C.  1401a(b)(1)(B).  However, imported
merchandise is appraised under transaction value only if, inter
alia, the buyer and seller are not related, or if related,
transaction value is found to be acceptable.  19 U.S.C. 
1401a(b)(2)(A)-(B).  Based on the information submitted we
understand that none of the parties to this transaction are related
and, accordingly, we have assumed for purposes of this decision
that transaction value is the appropriate basis of appraisement.

     In Nissho Iwai American Corp. v. United States, 786 F. Supp.
1002 (Ct. Int'l Trade 1992), rev'd in part, aff'd in part, 982 F.2d
505 (Fed. Cir. 1992), the Court of Appeals for the Federal Circuit
reviewed the standard for determining transaction value when there
is more than one sale which may be considered as being a sale for
exportation to the United States.  In so doing, the court
reaffirmed the principle of E.C. McAfee Co. v. United States, 842
F.2d 314 (Fed. Cir. 1988), that the manufacturer's price, rather
than the middleman's price, is valid so long as the transaction
between the manufacturer and the middleman falls within the
statutory provision for valuation.  Nissho Iwai, 982 F.2d 505, 511. 
In reaffirming the McAfee standard the court stated that in a
three-tiered distribution system:

     The manufacturer's price constitutes a viable transaction
     value when the goods are clearly destined for export to
     the United States and when the manufacturer and the
     middleman deal with each other at arm's length, in the
     absence of any non-market influences that affect the
     legitimacy of the sales price....[T]hat determination can
     only be made on a case-by-case basis.

Id. at 509.  See also, Synergy Sport International, Ltd. v. United
States, 17 C.I.T. 18, Slip Op. 93-5 (Ct. Int'l. Trade January 12,
1993).

     As a general matter in situations of this type, Customs
presumes that the price paid by the importer is the basis of
transaction value.  In order to rebut this presumption the importer
must, in accordance with the court's standard in Nissho, provide
evidence that establishes that the manufacturer's price was a
statutorily viable transaction value, i.e., that the goods were
"clearly destined for export to the United States" and that the
manufacturer and middleman dealt with each other at arm's length,
absent any non-market influences affecting the legitimacy of the
sales price.  Id. at 509.  It is the importer's responsibility to
demonstrate that the standard set forth in Nissho and Synergy has
been met.  E.g., Headquarters Ruling Letter (HRL) 545144 dated
January 9, 1994.

     In respect of the first prong of the Nissho test, protestant
has submitted copies of signed statements from the manufacturer and
the middleman to the effect that the there is no relationship
between the two companies.  Moreover, the documentation submitted
by the protestant suggests that there were two bona fide sales.  We
have therefore assumed for purposes of this ruling that all parties
to this transaction are unrelated and dealt with each other at
arm's length.  Thus, under the Nissho standard, the only issue to
be resolved in determining if the manufacturer-middleman sale was
statutorily viable for purposes of establishing transaction value
is whether the sweaters were clearly destined for export to the
U.S.

     To support its contention that the manufacturer's price
constitutes a viable transaction value, protestant has submitted
the purchase orders, invoices, receipts, bills of lading and visaed
invoices underlying the two sales.  First, protestant notes that
the sweaters were made according to protestant's design and size
specifications as set forth on both sets of purchase orders.  In
addition to size specifications, the purchase orders state that the
sweaters should be labeled with the licensed mark of a U.S.
retailer.  The purchase orders also require that the imported
merchandise bear protestant's Federal Trade Commission RN number
and note that the order is subject to the provision and approval of
sample merchandise.  Finally, protestant notes that the sweaters
were accompanied by visaed invoices and that the purchase orders
and invoices provide that the shipping marks to be placed on the
cartons indicate that the goods were at all times destined for New
York.

     Customs has looked to factors such as these in order to
determine whether merchandise was clearly destined for export to
the U.S.  E.g., HRL 545474, dated August 25, 1995; HRL 545612,
dated May 25, 1995; HRL 545709, dated May 12, 1995.  However, you
contend that the protestant has not overcome the presumption that
the price paid by the importer is the basis of transaction value
because of certain discrepancies between the visaed and commercial
invoices.  In this regard, we note that the importer's possession
of the requisite quota/visa category is a factor that may support
a finding that imported textile and apparel merchandise was clearly
destined for export to the U.S.  HRL 545271, dated March 4, 1994. 
However, so long as the imported merchandise is accompanied by a
visaed invoice that is correct in all respects, this office has not
required the importer in every instance to submit documentation
showing that quota was obtained pursuant to Textile Association
regulations.  Nevertheless, evidence that quota was so obtained may
be relevant in other situations.  E.g., HRL 545927 dated January
30, 1996.

     In the instant case, the documentation submitted in connection
with the protested entries contains certain discrepancies.  In
particular, there are discrepancies between the manufacturer's
price as reflected on the commercial invoice and the manufacturer's
price as stated on the visaed invoices.  For example, the unit
value of sweaters made from seventy-three percent acrylic, twenty-six percent nylon and one percent other fibers is shown as $100.00
on the visaed invoice but as either $115.00, or $118.00, on the
manufacturer's commercial invoice, depending on the style
concerned.  The reason for the discrepancies has not been
explained.

     In order to explain the price discrepancies between the visaed
and commercial invoices, your office requested copies of the
documentation that firms are required to submit under the terms of
the Textile Association regulations.  Pursuant to the regulations,
authorized export firms are required to submit a tender application
form stating, inter alia, the export price of the goods.  Successful
tenderers must sign a formal business contract with their foreign
clients within three months of the opening of tender date.  While the
price specified in the contract may equal or exceed the bid price, it
cannot be less than the bid price.  The China Textile and Silk
Garment Import/Export Commercial Association, 1990 Textile Quota
Tenders Regulations, art. 7 (John Hu, trans.).  Furthermore, once a
tender contract is awarded, its provisions may not be altered. 
Absent this documentation, however, there is no basis for
determining whether the discrepancies between the visaed and
commercial invoices in the instant case relate to a situation where
the contract price equals or exceeds the bid price, whether the
contract price is less than the bid price, nor is there any basis
for ascertaining whether changes were made to the tender contract.

     Furthermore, two of the visaed invoices, viz., nos. 594890 and
593801, make reference to two additional invoices, nos. 93025 and
93046, that relate to this transaction.  These additional invoices
may also be relevant in explaining the discrepancies. 
Nevertheless, while the additional invoices relate to the imported
merchandise and were requested by your office, they were not
submitted by the protestant.

     Under Treasury Decision, (T.D.) 86-56, 20 Cust. B. & Dec. 175,
differences or discrepancies contained in invoices and other entry
documentation presented to Customs in connection with imported
merchandise raise the presumption that the documents contain false
or erroneous information.  In addition, T.D. 86-56 provides:

          Section 484(a), Tariff Act of 1930, as amended (19
     U.S.C. 1484(a)), requires that importers file with
     Customs documentation which, among other things, allows
     Customs "to assess properly the duties on the
     merchandise, [and] collect accurate statistics with
     respect to the merchandise * * *."  Clearly, an invoice
     which sets forth a false purchase price does not satisfy
     this requirement.  Equally clearly, such an invoice fails
     the requirement imposed by 19 U.S.C. 1481(a)(5), that
     each invoice of imported merchandise set forth "[t]he
     purchase price of each item * * *."

20 Cust. B. & Dec. 176.  T.D. 86-56 provides further that such
documentation will not be accepted and must be returned to the
importer for correction.  Nevertheless, pursuant to the field
instructions implementing T.D. 86-56, dated May 1, 1986, Customs
may accept an entry so long as there is an acceptable explanation
for any differences in the price or value information contained in
the entry documentation.

     Although in this instance the imported merchandise was
released from Customs' custody, please note that in the future such
inconsistencies as exist here represent a sufficient basis under
T.D. 86-56 for requiring the submission of corrected documentation. 
Moreover, as you know, an importer's failure to provide corrected
documentation in response to a request under T.D. 86-56, allows
Customs, in appropriate circumstances, to initiate actions under
the civil and criminal penalty statutes it administers, including
but not limited to 19 U.S.C.  1592, 18 U.S.C.  542, and 18 U.S.C.
 1001.  T.D. 86-56, 20 Cust. B. & Dec. 175.

     In the circumstances of this case, however, it is our position
that, in accordance with T.D. 86-56, the discrepancies between the
commercial and visaed invoices raise the presumption that the
documents contain false or erroneous information in regard to
appraisement.  As noted above, it is the importer's responsibility
to demonstrate that the standard set forth in Nissho has been met. 
Here, the protestant has not satisfactorily explained the
discrepancies between the visaed and commercial invoices, e.g., by
providing the documentation requested by your office. 
Consequently, it is our position that the protestant has not
overcome the presumption that the imported merchandise was
correctly appraised on the basis of the price that the
protestant/importer paid to the middleman.  Accordingly, the
manufacturer's price cannot be used to determine transaction value.

HOLDING:

     Pursuant to the foregoing, the protest should be denied.  The
imported merchandise should be appraised, pursuant to the
transaction value method, on the basis of the price actually paid
or payable by the protestant to the middleman.

     In accordance with section 3A(11)(b), Customs Directive 099
3550-065, dated August 4, 1993, this decision should be mailed by
your office to the protestant no later than sixty days from the
date of this letter.  Any reliquidation of the entry in accordance
with this decision must be accomplished prior to the mailing of 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 to the public via the Diskette Subscription Service, the
Freedom of Information Act and other public access channels.

                         Sincerely,





                         Acting Director
                         International Trade Compliance Division