The importer purchased at Meyer Chinese origin cookware sets and Thai origin cookware sets including components of Chinese origin. The two sales channels included a related broker in Thailand, although sometimes a second broker in China was also involved. One of the questions asked was whether the importer’s account of the dutiable value could legally use the “transaction value” price paid by a relevant average person to a related manufacturer, even if both were located in Thailand (i.e. the “selling” price the first”) .
CIT misinterpretation of the legal framework
The legally preferred method of estimating the duty-free value of imported goods is the “transaction value” method.3 Transaction value is defined as “the price actually paid or payable for the goods when they are sold for export to the United States,” plus some enumerated additions and some legally required discounts.4 The importer may use the “transaction value” method, but only in certain circumstances. Specifically, the importer should usually be able to show:
- that the invoiced transaction used to determine the value of the imported goods was a bona fide sale—that is, in the transaction, someone actually “sold” the imported goods;
- If so, this sale of imported goods—even when it falls at the upstream end of a multilevel chain of sales and resale—was to be “exported to the United States” (aka the “first sale” rule);
- That Sufficient Information supports any legally required add-ons and deductions from the invoiced prices for this sale; And the
- If the seller and buyer of imported goods are “related” entities, the “price actually paid or payable” nevertheless reflects the principles of free trade.5
With respect to the second and third conditions of the four prerequisites for the application of the “transaction value” method, the original CIT Meyer decision, now rescinded and reinstated by the CAFC, had stated that the “first” sales involved did not have sufficient documentation (a) to disprove the existence of any Possible hidden support generated by China’s NME and (b) to demonstrate that prices reflect principles of free trade.
In arriving at these conclusions, the original CIT decision had circulated that US Customs law may prohibit importers from determining the duty-free value reported on the “transaction value” of the goods if the sale was to an intermediary between related parties and the goods were either-
- Produced in NME country such as China and Vietnam;
- Produced in a market economy country such as Thailand, but includes NME inputs; or
- Bought or sold by an NME entity, regardless of where the merged goods or inputs originated.
The language of the CIT opinion was broad, with potentially wide-ranging implications for global supply chains: “…this court has doubts about the extent, if any, of the ‘first sale’ test… that was intended to be applied to transactions involving participants or NME input”.6
Much of the logic in CIT’s original Meyer Decision relied on an extended reading of a single small phrase in a famous former CAFC Decision known as Nissho Iwai.7 In Nissho Iwai, CAFC held that the importer correctly based the transaction value of some imported subway cars on the “first sale” price paid by a foreign purchasing agent to a foreign factory, rather than the higher price paid by the American importer paid to a wholly US-owned subsidiary For a foreign purchasing agent.8 The facts invoked this finding in Nissho Iwai because the foreign car company’s production of a “certain US buyer” meant that when the average person placed their order, the cars were “prepared” for export to the United States and had no possible alternative destination.9 Nissho Iwai CAFC noted that the importer’s account of the duty-free value could use this “first sale,” mostly because the subway cars were clearly destined for the US – but also because the sale met all other legal requirements. Explaining the latter details (what made the sale “legally viable”), Nissho Iwai CAFC wrote, in the relevant section: “A 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 intermediary deal with each other. Some are at arm’s length, in the absence of any non-market influences affecting the legitimacy of the selling price” (emphasis added).10
Mayer’s original CIT decision focused on Nissho Iwai’s single expression that we italicized, “absence of any non-market influences,” and made it an additional required element, as if it were necessary and separate from the above four legal requirements.11 CIT wrote that this factor was “generally ignored.”12 But it was significant in Meyer’s facts because China “supposedly”13 NME has remained in customs assessment decisions no less than the US Department of Commerce’s trade reform actions. In addition, Meyer CIT assumed that because the United States had not yet recognized China as a market economy, the importer had a “burden of proof” that the buyer purchased the goods “at undistorted prices.”14
CAFC overturns CIT .’s Meyer decision
According to the new CAFC ruling, Meyer’s CIT “misinterpreted Nissho Iwai to impose a requirement beyond what is required by law and regulations.” especially:
There is no basis in customs or court statutes to consider the effects of a non-market economy on the value of a transaction. The statute only requires that ‘the relationship between [the] Buyer and seller have no influence on the price actually paid or payable.” 19 USC § 1401a(b)(2)(B). This provision relates to the effects of the buyer-seller relationship, not the effects of government intervention, particularly not of government interference affecting the industry as a whole. .15th
When using the phrase “absence of any non-market impacts,” Nissho Iwai CAFC was “only restating the legal requirements for the value of the transaction, rather than introducing a new requirement separate from the requirements for commercial use.”16 In invalidating the CIT decision, Meyer CAFC reaffirmed the four previous requirements that we summarized above for the use of “transaction value” to calculate values subject to duties and disregarding any imposition of an additional fifth requirement when transactions are involved in NMEs. Because the CIT decision was based on a “misreading” of Nissho Iwai, I vacated the CAFC and returned to CIT for reconsideration.17
If upheld, CIT’s original Meyer decision would have forced many importers to re-evaluate their own valuation methodologies or supply patterns, as these often include not only related party transactions, but also NME inputs, processing, suppliers and middle people. Currently, the CAFC procedure has rendered these re-evaluations unnecessary. Mayer’s case is still breathing, because CIT has not yet reconsidered whether there is a reason other than a hypothetical “distorted”18 The NME effect prevents the importer from using the “first sell” price. We will provide further updates if the re-report of the ICT Court changes the status quo revealed and clarified by the new CAFC decision.
CAFC opinion in the Meyer Corp. case, US v. United States is available online here.
1 Fed. Mr. Case No. 2021-1932, decided August 11, 2022) (hereinafter “Meyer CAFC”).
2 Meyer Corp., US v. United States, Slip Op. 21-26, i. No. 13-00154 (Ct. Int’l Trade March 1, 2021) (hereinafter “Meyer CIT”).
3 19 USC §§ 1401a (a) (1) (A) and 1401a (b); Compare with 19 CFR §§ 152.101(b)(1) and 152.103.
4 19 USC § 1401a(b).
5 19 USC § 1401a(b); Also, 19 CFR §§ 152.103 (b)-(g), 152.103 (i), 152.103 (j) (1) (iv), 152.103 (j) (2) and 152.103 (l). In general, claiming that the price will reflect the principles of free trade means that the relationship between seller and buyer will not improperly cause one to act against their best interests and for the price to be much higher or lower than it otherwise would have been. The seller and the buyer were unrelated. However, law, regulations, and the issues that explain them set out specific tests for determining whether free trade principles govern export prices.
6 Mayer CIT at 120.
7 Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir.1992).
8 ibid., 982 F.2d at 509.
9 same reference.
10 same reference.
11 See, for example, Meyer CIT at 2-3, 13, 15 and 91-92 (citing Nissho Iwai requesting the absence of “non-market influences”).
12 same reference. at 3 o’clock.
13 ibid. at 16.
May 15 CAFC on 11.
16 Ibid. at 12.
18 Meyer CIT at 2, 5, 15, 115 and 118