CSMS Message: 93-000263

TO : ALL ABI BROKERS.

FROM : LISA CROSBY

SUBJECT : MIS-NISSHO IWAI

DATE : 03/15/93

3061071
MARCH 8, 1993

CATEGORY: MIS CO:TO:T:A LAC

TO : REGIONAL DIRECTORS FOR COMMERCIAL OPERATIONS, DISTRICT
AND PORT DIRECTORS

FROM : DIRECTOR
OFFICE OF TRADE OPERATIONS

RE : EFFECT OF NISSHO IWAI AND RELATED CASES ON FIELD
OPERATIONS

PASS TO: IMPORT SPECIALISTS AND OTHER INTERESTED PARTIES SUCH AS
BROKERS AND IMPORTERS

BACKGROUND:

AS MANY OF YOU ARE AWARE, THE COURT OF APPEALS' RECENT
DECISION IN NISSHO IWAI AMERICAN CORP. V. UNITED STATES, COURT
NO. 92-1239, (CT. OF APPEALS FED. CIR. DECEMBER 28, 1992) HAS
SIGNIFICANT IMPLICATIONS FOR CUSTOMS VALUATION OF IMPORTED
MERCHANDISE. THE NISSHO IWAI DECISION INVOLVED THE SALE OF
SUBWAY CARS FROM A JAPANESE MAKER (KAWASAKI HEAVY INDUSTRIES
LTD.) THROUGH A MIDDLEMAN (NISSHO IWAI CORPORATION) TO A U.S.
PURCHASER (NEW YORK CITY METROPOLITAN TRANSPORTATION
CORPORATION). THE COURT OF APPEALS FOR THE FEDERAL CIRCUIT HELD
THAT THE TRANSACTION VALUE OF THE IMPORTED VEHICLES MUST BE BASED
ON THE PRICE OF THE SALE FROM KAWASAKI TO NISSHO IWAI (WHO WERE
UNRELATED), NOT THE SALE FROM NISSHO IWAI TO THE NEW YORK
METROPOLITAN TRANSPORTATION CORPORATION. NISSHO IWAI REJECTED
THE "MOST DIRECT CAUSE OF EXPORTATION" TEST PREVIOUSLY USED BY
CUSTOMS IN THESE KINDS OF TRANSACTIONS AND INSTEAD HELD THAT THE
PRICE FROM THE FOREIGN MANUFACTURER TO THE MIDDLEMAN MUST BE USED
AS THE BASIS FOR APPRAISEMENT IF: 1) THE SALE IS FOR EXPORT TO
THE U.S., AND 2) IS AT ARM'S LENGTH.

AS A RESULT OF THIS AND RELATED CASES, MANY IMPORTERS ARE
NOW CHALLENGING CUSTOMS VALUATION OF THEIR MERCHANDISE. THESE
INSTRUCTIONS ARE TO ASSIST IMPORT SPECIALISTS IN APPLYING NISSHO
IWAI. GIVEN THE BROAD IMPLICATIONS OF NISSHO IWAI, IT IS LIKELY
THAT ADDITIONAL ISSUES WILL ARISE WHICH ARE NOT ADDRESSED HERE.
IMPORT SPECIALISTS ARE REMINDED TO REQUEST INTERNAL ADVICE WHEN
THESE GUIDELINES PROVE INSUFFICIENT TO DETERMINE THE PROPER
COURSE OF ACTION.

ACTION:

1. ENTERED VALUES BASED ON A SALE FROM A MANUFACTURER TO A
MIDDLEMAN MAY BE LIQUIDATED ONCE THE IMPORTER HAS
DEMONSTRATED TO THE SATISFACTION OF THE IMPORT SPECIALIST
THAT THE SALE FROM THE MANUFACTURER TO THE MIDDLEMAN WAS A
BONA FIDE SALE FOR EXPORT TO THE U.S. AND WAS AT ARM'S
LENGTH. IMPORT SPECIALISTS ARE REFERRED TO CUSTOMS NOTICE
ON TRANSFER PRICING FOR GUIDANCE ON WHAT CONSTITUTES AN
ARM'S LENGTH TRANSACTION WHEN PARTIES TO A SALE ARE RELATED
(58 FED. REG. 5445 JANUARY 21, 1993).

2. PROTESTS OF ENTERED VALUES ON LIQUIDATED ENTRY SUMMARIES,
BASED ON THE DECISIONS IN NISSHO IWAI, SYNERGY, COURT NO.
91-11-00836 (CT. INT'L TRADE JANUARY 12, 1993), MCAFEE, 6
FED. CIR. (T) 92, 842 F.2D 314 (FED. CIR. 1988), AND RELATED
COURT CASES, MAY BE ALLOWED ONCE THE IMPORTER ESTABLISHES
THAT THE SALE FROM THE MANUFACTURER TO THE MIDDLEMAN WAS A
BONA FIDE SALE FOR EXPORT TO THE U.S. AND WAS AT ARM'S
LENGTH, AS INDICATED ABOVE.

QUESTIONS REGARDING THESE INSTRUCTIONS MAY BE DIRECTED TO
JOSEPH BURBACH, IMPORT SPECIALIST OPERATIONS BRANCH, AT (202)
927-1131. QUESTIONS REGARDING LEGAL ASPECTS OF THESE DECISIONS
SHOULD BE DIRECTED TO THE VALUE AND MARKING BRANCH, OFFICE OF
REGULATIONS AND RULINGS, AT (202) 482-7010.

PHILIP METZGER