HQ 545096: Request for Internal Advice 45/92 Concerning Dutiability of Transportation Charges; Country of Exportation; Timing of Sale For Exportation.

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 545096
                           May 31, 1994
CO:R:C:V  545096 er

CATEGORY:  Valuation

Area Director
Newark, New Jersey

RE:  Request for Internal Advice 45/92 Concerning Dutiability
     of Transportation Charges; Country of Exportation; Timing
     of Sale For Exportation.

Dear Sir:

     This is in response to your memorandum dated July 13, 1992,
forwarding counsel's request for internal advice dated May 21 and
November 13, 1991, submitted on behalf of their client, xxx.  We
regret the delay in responding. 

FACTS:

     xxx purchased various articles of apparel from yyy in Hong
Kong.  The articles were manufactured in China by zzz.  The invoice
between the seller, yyy, and the importer, xxx, shows an "FOB
China" price, and identifies a separate amount for the freight
charges incurred in shipping the merchandise from China to Hong
Kong.  The merchandise was subsequently exported from Hong Kong to
the United States. 

     Counsel claim that the charges incurred to ship the subject
merchandise from the manufacturer's plant in China to Hong Kong
were incurred after the merchandise was sold for exportation and
are therefore not dutiable.  Counsel believe that the actual sale
for exportation occurred in China because the shipping terms on
yyy's invoice for goods shipped to xxx from Hong Kong are
identified as "FOB China".  Counsel reason that these shipping
terms evidence that risk of loss passed to xxx at the time the
goods left the manufacturer's factory in China for shipment to Hong
Kong and, accordingly, that the sale for exportation must also
occur at the same time.  That risk of loss passed to xxx in China,
counsel contend, is further evidenced by the existence of an
insurance policy which counsel characterize as one which insured
the merchandise "primarily for the beneficial interest of xxx from
the time of departure from China."

     Various exhibits were submitted with this request which
include copies of Customs Notices of Action (CF 29's); invoices
from yyy to xxx; invoices from zzz to aaa of Hong Kong; air
waybills executed by China Travel Services; invoices for the air
waybills from China Travel Services to yyy; invoices from Dart
Express in China to yyy covering handling charges; and an insurance
broker's note.

ISSUE:

     Whether, under the circumstances presented, the transportation
charges incurred to ship the subject merchandise from the
manufacturer in China to the seller in Hong Kong are a part of
transaction value.

LAW AND ANALYSIS:

     As you know, transaction value, the preferred method of
appraisement, is defined in section 402(b) 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
enumerated additions.

     The "price actually paid or payable" is defined in section
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 from the country of
exportation to the place of importation in the United States) made,
or to be made, for the imported merchandise by the buyer to, or for
the benefit of, the seller." (emphasis added)

     Counsel characterize the charges incurred to ship the
merchandise between China and Hong Kong as "inland freight"
charges.  Because China and Hong Kong are still regarded as two
separate countries, this characterization of the charges is
incorrect.  Accordingly, application of section 152.103(a)(5) of
the Customs Regulations, as amended by T.D. 84-235, which pertains
to foreign inland freight and other inland charges, is not
warranted.  Under the circumstances, the charges in question are
merely transportation charges. 

     For purposes of determining transaction value in appraising
imported merchandise, the sale for exportation to the United States
must take place at some unspecified time prior to the exportation
of the goods.  (HRL 543868 dated March 5, 1987).  It is undisputed
that the subject merchandise was manufactured in China and that a
sale for exportation of the subject merchandise took place at some
time prior to the exportation of the goods from Hong Kong.  What is
at issue is whether the sale preceded the time at which the
transportation charges were incurred between China and Hong Kong,
in which case China would be the country of exportation and the
transportation charges between China and Hong Kong would constitute
part of the charges incurred for the international shipment of the
merchandise from the country of exportation to the United States. 
In other words, the transportation charges would not be dutiable as
part of the price actually paid or payable.
     
     A sale for exportation between zzz and xxx is not claimed;
rather, counsel contend that while the sale for exportation was
between yyy and xxx, the sale actually occurred in China, as
evidenced by the "FOB China" shipping terms on yyy's invoice to
xxx.  Thus, counsel reason, the charges were incurred after the
merchandise was sold for exportation and the basis for transaction
value would be the "FOB China" price on the invoice, less the
separately identified charges and expenses incurred for the prepaid
transportation of the merchandise from China to Hong Kong.  The
validity of counsel's position depends on whether these
transportation costs were in fact incurred after the merchandise
was sold for exportation and, consequently, whether China was the
country of exportation.

     Because the shipping terms on yyy's invoice are "FOB China",
counsel maintain that risk of loss passed to xxx at the time the
goods left the manufacturer's plant and, along with passage of risk
of loss, the sale for exportation occurred.  While shipping terms
are normally of value in evaluating when risk of loss and passage
of title occur, they are meaningless in the instant situation
unless the sale for exportation preceded or coincided with the
shipment from China.  Otherwise, the designation of such terms on
yyy's invoice would have the effect of transferring risk of loss to
xxx to a time preceding the moment when xxx purchased or contracted
to purchase the merchandise. 

     Regarding merchandise imported from intermediate countries,
section 152.23, Customs Regulations (19 CFR 152.23), provides that
merchandise imported from one country, being the growth, production
or manufacture of another country, shall for value purposes be
treated as an exportation of the country from which it is
immediately imported.  However, if it appears by the invoice, bill
of lading, or other evidence that the merchandise was destined for
the United States at the time of original shipment, it shall be
treated as an exportation of the country from which it was
originally exported.  

     No evidence has been presented that the merchandise was
destined for the United States  at the time of original shipment
from China.  The documentation submitted reveals that the
transportation of the merchandise between China and Hong Kong is
arranged between yyy, zzz and various forwarders.  Nowhere in this
documentation is xxx mentioned.  While the copy of the insurance
broker's note demonstrates that both xxx and yyy are covered for
their respective rights and interests, the note in no manner
evidences that the subject merchandise was destined for the United
States at the time it was shipped from the manufacturer's plant. 
Under the circumstances, in the absence of any evidence that the
merchandise was destined for the United States at the time it was
shipped from China, Customs finds that Hong Kong is the exporting
country and the transportation charges incurred prior to the time
the merchandise was exported from Hong Kong may not be deducted
from the price actually paid or payable.  (See, HRL 543643 dated
September 24, 1986)

HOLDING:

     For the reasons discussed above, the transportation charges
incurred to ship the merchandise from China to Hong Kong may not be
deducted from the price actually paid or payable, and thus remain
a part of transaction value.  

     This decision should be mailed by your office to the internal
advice requester no later than 60 days from the date of this
letter.  On that date 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, Lexis, Freedom of Information Act and other
public access channels.


                                        Sincerely,


                                        John Durant, Director
                                        Commercial Rulings Division