E.C. McAfee Co. v. U.S.

• Decision Date: 01 March 1988
• Docket Number: No. 87-1441,87-1441
• Citation: 842 F.2d 314
• Parties: , 6 Fed. Cir. (T) 92 E.C. McAFEE COMPANY and St. Paul Fire and Marine Insurance Company, Plaintiffs-Appellants, American Air Parcel Forwarding Company, Ltd., Plaintiff, v. The UNITED STATES, the United States Customs Service and the Commissioner of Customs, Defendants-Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

Page 314

842 F.2d 314

9 ITRD 2257, 6 Fed. Cir. (T) 92

E.C. McAFEE COMPANY and St. Paul Fire and Marine Insurance

Company, Plaintiffs-Appellants, American Air Parcel Forwarding Company, Ltd., Plaintiff, v. The UNITED STATES, the United States Customs Service and the

Commissioner of Customs, Defendants-Appellees.

No. 87-1441.

United States Court of Appeals, Federal Circuit.

March 1, 1988.

Leonard L. Rosenberg, Sandler & Travis, P.A., Miami, Fla., for plaintiffs-appellants.

Kenneth N. Wolf, Commercial Litigation Branch, Dept. of Justice, of New York City, for defendants-appellees. With him on the brief were Richard K. Willard, Asst. Atty. Gen., David M. Cohen, Director and Joseph I. Liebman, Attorney in Charge, Intern. Trade Field Office.

Before MARKEY, Chief Judge, and RICH and NIES, Circuit Judges.

NIES, Circuit Judge.

This is an appeal, pursuant to 28 U.S.C. Sec. 1295(a)(5) (1982), by E.C. McAfee Company and St. Paul Fire and Marine Insurance Company from the final judgment of the United States Court of International Trade in American Air Parcel Forwarding Co. v. United States, 664 F.Supp. 1434 (CIT 1987) (DiCarlo, J.), sustaining the assessment of duties under 19 U.S.C. Sec. 1401a (1982), on the basis of the price paid by the United States customers to Hong Kong distributors for imported, made-to-measure clothing produced in Hong Kong ("consumer price"). Appellants maintain that the merchandise should be assessed on the basis of the cost to the distributors of tailoring services in Hong Kong with the addition of the cost of fabric and certain other adjustments ("assembly price"). We conclude that appellants' position is correct and, accordingly, reverse the judgment in favor of the United States.

I

American Air Parcel Forwarding Company, Ltd. (AAP), importer of record, is a freight forwarder for Hong Kong distributors of made-to-measure clothing made in Hong Kong for customers in the United States. AAP consolidates the individual shipments of numerous distributors, sends the merchandise to Detroit, files entries for the merchandise, and forwards the clothing to the individual United States customer. McAfee is the customs broker for AAP in this transaction, and St. Paul is the surety.

A stipulation of the parties sets out the following additional facts. Orders for the subject custom-made clothing are taken either in the United States or in Hong Kong. In the former instance, sales representatives of Hong Kong distributors advertise their availability and set up a display of fabrics and styles, usually in a hotel, in the United States. The customer makes a selection, his measurements are taken, and an order form is written up. The customer remits the purchase price to the sales representative. The representative sends the order form to his distributor in Hong Kong. Other transactions originate in retail shops of distributors in Hong Kong, where tourists may place orders. In that instance, a similar procedure is followed in that the clothing is sent via AAP to the United States for forwarding to the United States customer. ¹

In either case, on receipt of an order, the distributors contract with tailors in Hong Kong to produce the clothing. The distributor supplies fabric to the tailor who manufactures the clothing and returns the finished apparel to the distributor. The tailors' manufacturing operation--the "CMT" operation--involves cutting the fabric, sewing the cut parts (making), and supplying the garment's trim, e.g., lining, buttons, etc. Upon receipt of the finished clothing, the distributor packs the clothing, addresses the package to individual customers, obtains quota and visa if necessary, and gives the package to AAP which the latter forwards as part of a consolidated shipment.

The United States Customs Service issued a ruling, Export Value: Dutiability of Sales from Manufacturers to Distributors, CLA-2: RRUCV 065056 # CW TAA # 10, C.S.D. 81-72, 15 Cust. B. & Dec. 876 (Oct. 17, 1980) [hereinafter "TAA # 10"], which ruled that "transaction value" for appraisement purposes under section 402 of the Tariff Act of 1930, as amended by section 201 of the Trade Agreements Act of 1979, 19 U.S.C. Sec. 1401a, was established by the "assembly price," i.e., the CMT price paid by the Hong Kong distributors plus the cost of the fabric and other adjustments specified in 19 U.S.C. Sec. 1401a (e.g., packing costs). A year later Customs changed its interpretation and issued another ruling, designated CLA-2-CO:R:CV:V, 542643 TLL, TAA # 40 (Oct. 19, 1981) (unpublished) [hereinafter "TAA # 40"]. TAA # 40 retroactively revoked TAA # 10 and ruled that transaction value for the subject entries is the U.S. customer's price. Retroactive revocation of TAA # 10 caused AAP's entries to be liquidated at substantially higher values than the entered values. Thus, Customs issued bills for increased duties. St. Paul paid the increased duty only on Entry No. 337670, entered on January 2, 1981. A protest was filed challenging the Customs Service's valuation, which was denied. AAP, McAfee, and St. Paul (collectively "the importers") unsuccessfully contested that denial before the Court of International Trade.

II

It is agreed that the valuation of the subject merchandise is its "transaction value." The statutory provisions governing the assessment of duties on the basis of "transaction value" pertinent to this case are the following:

19 U.S.C. Sec. 1401a(b)(1). The transaction value of imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts equal to--

(A) the packing costs incurred by the buyer with respect to the imported merchandise;

....

(C) the value, apportioned as appropriate, of any assist....

The Customs regulations implementing these provisions include the following:

Sec. 152.103 Transaction value.

(a) Price actually paid or payable--

(1) General. In determining transaction value, the price actually paid or payable will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula....

....

(3) Assembled merchandise. The price actually paid or payable may represent an amount for the assembly of imported merchandise in which the seller has no interest other than as the assembler. The price actually paid or payable in that case will be calculated by the addition of the value of the components and required adjustments to form the basis for the transaction value.

19 C.F.R. Sec. 152.103(a) (1987). Subparagraph (3) is in accordance with the legislative history which states:

In some cases, the price actually paid or payable may represent an amount for assembly of merchandise in which the seller has no interest in the merchandise other than as assembler. In such cases the price actually paid or payable, adjusted by the addition of the value of the components and required adjustments, will form the basis for the transaction value.

Statements of Administrative Action, H.R.Doc. No. 153, 96 Cong., 1st Sess., pt. 2, at 442, reprinted in 1979 U.S.Code Cong. & Admin.News 381, 705. The importers contend that the facts here present the type of assembly operation which Congress contemplated would be used to determine transaction value under section 1401a(b).

The trial court interpreted the above regulations to provide that only if there were no sale of merchandise falling under section 152.103(a)(1) could a price be constructed based on assembly price under section 152.103(a)(3). Finding a sale of clothing between the distributor and the United States customer, the court held that the price of that sale determined transaction value. The court went on to hold that, in any event, the provisions of subparagraph (3) could not apply because the sale between the distributor and tailor was not "for exportation to the United States."

III

The questions raised by this appeal are whether the custom-made clothing is assembled merchandise within the meaning of the regulation and, if so, whether the transaction value of the merchandise should be determined on that basis.

IV

With respect to the question of the meaning of "assembled merchandise," an extant ruling of Treasury, Value: Appraisement of Women's Wearing Apparel, CLA-2: RRUCV 542181RP TAA # 8, C.S.D. 81-92, 15 Cust. B. & Dec. 921 (Oct. 15, 1980) [hereinafter "TAA # 8"], holds that where an importer/buyer purchased piece goods which it supplied to manufacturers (related and unrelated companies) to be made into garments for which service it paid a CMT price, "the transaction value for the merchandise would be represented by the price actually paid or payable for the garments (i.e., the CMT charge paid to the manufacturer) plus applicable additions as specified in section 402(b)(1)(A)-(E)." TAA # 8 at 2, 15 Cust. B. & Dec. at 922. ² The trial court found that TAA # 8 was inapplicable here because of a difference in facts. While the facts are different in that TTA # 8 does not address custom-made clothing, we conclude that it applies at least to the extent that the CMT operation by Hong Kong tailors must also be considered an "assembly" and the imported goods to be "assembled merchandise" within the meaning of the regulation. See, e.g., Texas State Comm'n for the Blind v. United States, 796 F.2d 400, 406 (Fed.Cir.1986) ("authoritative administrative constructions [such as Customs rulings] should be given the deference to which they are entitled") (citing United States v. Turkette, 452 U.S. 576, 580, 101 S.Ct. 2524, 2527, 69 L.Ed.2d 246 (1981)), cert. denied, --- U.S. ----, 107 S.Ct. 874, 93 L.Ed. 828 (1987); Julius Goldman's Egg City v. United States, 697 F.2d 1051, 1055 (Fed.Cir.) (deferential standard applies to review of agency's interpretation of its regulations), cert. denied, 464 U.S. 814, 104 S.Ct. 68, 78 L.Ed.2d 83 (1983). ³

V

Determining that the transaction between the...