Appealed from: U.S. Court of International Trade. Judge Musgrave
Before Rich, Archer, and Lourie, Circuit Judges.
Nissho Iwai American Corporation (NIAC) appeals from the judgment of the United States Court of International Trade granting the government's cross-motion for summary judgment and counterclaim on NIAC's challenge of a valuation determination by the United States Customs Service. Nissho Iwai American Corp. v. United States, Court No. 86-11-01439 (Ct. Int'l Trade February 28, 1992). In granting summary judgment, the trial court held that the transaction value of the imported merchandise at issue, as defined in 19 U.S.C. § 1401a(b)(1) (1988), was properly based on the price of the sale from the middleman to the ultimate United States purchaser. Because the transaction value in this case must be based on the price of the sale from the foreign manufacturer to the middleman, we reverse the trial court's grant of summary judgment. With respect to the government's counterclaim, the trial court held that a buying commission received by NIAC was not entitled to be deducted from dutiable value because there was no bona fide agency relationship. We affirm the trial court's grant of the government's counterclaim.
This appeal concerns the proper dutiable value of 205 rapid transit passenger cars imported to the United States from Japan during 1983-1985. The vehicles at issue were imported pursuant to a three-tiered distribution arrangement involving a manufacturer, Kawasaki Heavy Industries Ltd. (KHI), a middleman, Nissho Iwai Corporation (NIC), and a purchaser, the Metropolitan Transportation Authority of New York City (MTA). NIC and KHI are independent corporations organized under the laws of Japan. The MTA is a public benefit corporation of the State of New York.
In 1981, NIC and KHI conducted preliminary negotiations regarding the possible manufacture of subway cars by KHI for the MTA. By means of a contract dated March 17, 1982, the MTA agreed to purchase 325 passenger cars from NIAC, a wholly-owned U.S. subsidiary of NIC, for use in the New York City Transit System. Article VI-C of the contract specified that "the passenger cars to be furnished hereunder will be manufactured and produced by Kawasaki Heavy Industries, Ltd., Japan." The contract also stipulated that the vehicles would be manufactured using components from both the United States and Japan.*fn1 The MTA purchased the cars at the unit price of $844,500 per car as provided in Article VII-A(a) of the contract. On the same day the contract was entered into by the MTA and NIAC, NIAC assigned all of its rights and obligations under the contract to NIC pursuant to Article VI-A. KHI also signed a warranty of performance to the MTA and NIAC on that date.
Pursuant to a contract dated March 23, 1983, NIC placed an order with KHI for the production of the 325 passenger cars subject to the NIC/NIAC-MTA contract of March 17, 1982. Under the KHI-NIC agreement, KHI agreed to manufacture the 325 vehicles in Japan in accordance with the specifications of the NIC/NIAC-MTA contract, said vehicles to be delivered to NIC "FOB, Kobe Japan." The vehicles manufactured and delivered by KHI were specifically intended for sale to the MTA and could not be used for any other purpose. The payment by NIC to KHI was negotiated to be for all 80,002,100 per vehicle, plus escalation and change order payments determined under a formula specified in the NIC/NIAC-MTA contract.
The 325 passenger cars subject to the NIC/NIAC-MTA and KHI-NIC contracts were imported in sixteen entries from August 18, 1983 through June 27, 1985. Upon entry, the imported vehicles were classified under item 690.10, Tariff Schedules of the United States (TSUS)*fn2 dutiable (at the rate in effect at the time of each entry) on the full value of the imported merchandise less the cost or value of products of the United States included in such value pursuant to item 807.00, TSUS.
Duties were assessed by Customs on the basis of the "transaction value" of the imported vehicles, as that term is defined in 19 U.S.C. § 1401a(b)(1).*fn3 The transaction value of the first 120 passenger cars (the first eleven entries) was determined on the basis of the KHI-NIC sales price. The entry of those vehicles is not at issue.*fn4 The remaining 205 cars, however, were appraised by Customs at the price paid by the MTA to NIC/NIAC, less certain deductions which Customs considered appropriate.*fn5 Specifically, Customs determined that each of the imported vehicles at issue had a dutiable value of "US$542,036.45, per unit less appropriate duties net." Upon making the necessary duty deductions, the final dutiable value per vehicle was assessed at $497,737.61 for vehicles entered in 1983, $500,495.16 for vehicles entered in 1984, and $503,751.17 for vehicles entered in 1985.*fn6
On August 4, 1983, NIAC protested Customs' appraisals of the value of the imported merchandise and requested that Customs issue a ruling holding that the dutiable value of the vehicles should be based on the price paid by NIC to KHI. Customs responded that it "was [initially] refraining from issuing a ruling in this case" because the issue whether the KHI-NIC sales price could represent the "relevant sale for exportation to the United States under 19 U.S.C. § 1401a(b)(1)" was "involved in a case which [was then] currently pending" before the Court of International Trade. That case was American Air Parcel Forwarding Co. Ltd. v. United States, 11 Ct. Int'l Trade 193, 664 F. Supp. 1434 (1987), rev'd sub nom. E.C. McAfee Co. v. United States, 842 F.2d 314, 6 Fed. Cir. (T) 92 (Fed. Cir. 1988).
The entries at issue were finally liquidated in December 1985. Customs adhered to its determination that the transaction value of the imported vehicles was represented by the contract price between the MTA and NIC/NIAC. NIAC commenced an action in the Court of International Trade for reliquidation of the imported vehicles based upon the price paid by NIC to KHI. NIAC argued that this court's decision in McAfee mandates that the appraisal of the value of the imported vehicles be based on the price paid by the middleman to the manufacturer, i.e., the KHI-NIC price.
Before the trial court, the parties filed cross motions for summary judgment on the reliquidation claim. Following the analysis of Brosterhous, Coleman & Co. v. United States, 737 F. Supp. 1197 (Ct. Int'l Trade 1990), the court determined that the contract between the MTA and NIC/NIAC "was the contract which most directly caused the goods to be exported to the United States" and thus held that the value of the vehicles was properly based on the NIC/NIAC-MTA contract price. The court also found that NIAC was not a bona fide buying agent and concluded that a commission paid by NIC to ...