Earlier sale concept available for U.S. importers.

• Author: Levine, Mark J.

On Dec. 28, 1992, the Court of Appeals for the Federal Circuit handed down a decision overturning a Court of International Trade (CIT) ruling in Nissho Iwai American Corp. The case involved the "sale for export issue," a very unsettled area in the past. The Court of Appeals held that the manufacturer's price, rather than the price from the middleman to the purchaser, could be used as the basis for determining transaction value in certain situations, provided the merchandise was clearly destined for export to the United States. Similarly, the CIT, citing the Court of Appeals, held on Jan. 12, 1993 that duties were owed only on the price the importer paid the foreign exporter, not the importer's resale price to the ultimate buyer.

These decisions, if not limited by the U.S. Customs Service to the individual commodities involved, may provide substantial reductions in the value of imported merchandise for many corporations in the future.

The transaction value of imported merchandise is defined in 19 U.S.C. Section 140la(b)(1) as the "price actually paid or payable for the merchandise when sold for exportation to the United States," (emphasis added) subject to certain additions and deductions. The statute further provides that merchandise may not be valued on the basis of "a system that provided for the appraisement of imported merchandise at the higher of the two alternative values."

However, it is not always clear when the sale for exportation to the United States actually takes place. For example, a foreign manufacturer sells to a middleman, who then sells to a U.S. customer. Should the "first sale," between the manufacturer and middleman, or the "second sale," between the middleman and the U.S. customer, be considered the sale for export when determining the transaction value for U.S. Customs purposes?

The CIT ruled in Nissho Iwai American Corp. that the transaction value of imported merchandise (in this case, subway cars) was based on the price of the sale from the middleman to the ultimate U.S. purchaser; this was the sale that caused the merchandise to be exported to the United States.

Previously, the Court of Appeals for the Federal Circuit held in E.C. McAfee Co., 842 F2d 314, that the price paid by a Hong Kong distributor to a Hong Kong tailor (the manufacturer) of made-to-measure clothing was the relevant sale for exportation to the United States for valuation purposes, not the sale from the Hong Kong distributor to a U.S. customer...