AFR of Protest No. 1001-95-106797; sale for exportation; Nissho Iwai; evidence insufficient to show that the imported merchandise was clearly destined for the U.S.

HQ 546353 December 15, 1998 VAL RR:IT:VA 546353 CRS CATEGORY: Valuation Area Director U.S. Customs Service JFK International Airport Building # 77 Jamaica, NY 11430 RE: AFR of Protest No. 1001-95-106797; sale for exportation; Nissho Iwai; evidence insufficient to show that the imported merchandise was clearly destined for the U.S. Dear Sir: This is in response to an application for further review (AFR) of the above-referenced protest, filed by counsel Grunfeld, Desiderio, Lebowitz & Silverman on behalf of the protestant and importer of record, Pacific Silk and Clothing Co., Inc. ("Pacific Silk"). The AFR was forwarded to this office under cover of a memorandum dated April 12, 1996, from the Chief, Residual Liquidation and Protest Branch. A meeting was held with counsel at Customs Headquarters on June 25, 1998. We regret the delay in responding. FACTS: The instant protest was timely filed and concerns seven entries filed by the protestant at the port of New York, JFK Airport Area. In accordance with section 3(D)(1), Customs Directive No. 0993550-065, dated August 4, 1993, the protest was designated the lead protest of numerous protests filed by protestant at the port of JFK. The subject of the protest is the appraisement of women’s wearing apparel imported into the United States pursuant to a three-tiered transaction involving Pacific Silk, High Fashion Garments Overseas, Ltd. ("High Fashion"), a middleman located in the former British Crown Colony of Hong Kong, and various manufacturers/sellers in the People’s Republic of China. Some of the manufacturers/sellers of the imported goods are related to High Fashion. Counsel has advised that High Fashion is related to six factories in Guangdong and seven factories in Zhejiang. The protestant contends that the imported merchandise should be appraised under the transaction value method on the basis of the sale between the manufacturer/seller and High Fashion. Pacific Silk has submitted various documents in support of its position including: invoices from the manufacturer/seller to High Fashion; stamped, visaed invoices issued by the Chinese authorities for the appropriate quota category; sales confirmations from the manufacturer/seller to Pacific Silk; invoices from High Fashion to Pacific Silk; bills of lading and other shipping documents; Pacific Silk’s marine cargo insurance policy; and payment advices detailing payments by High Fashion to certain of the Chinese sellers. The documentation is attached as Exhibits A-I to counsel’s submission of February 6, 1996, with Exhibits A-G relating specifically to the seven entries at issue. The documents listed above have not been submitted in respect of each and every entry. Protestant has also submitted a list of the manufacturers related to High Fashion; however, no purchase orders from the importer, Pacific Silk, or from the middleman, High Fashion, were submitted in respect of any of the seven protested entries. Exhibit A consists of commercial invoices, sales confirmations, proof of payment, packing lists, visaed invoices, certificates of inspection, bills of lading and shipping advices relating to a three-tiered sale between Pacific Silk, High Fashion and the seller, China Worldbest Development Corporation, of several styles of women’s 100 percent spun silk knitted blouses, textile category 739. The style numbers and quantities are identical on both sets of commercial invoices. The shipping documents indicate that the blouses were shipped by air from Shanghai directly to Pacific Silk in Secaucus, New Jersey. Also included are two sales confirmations issued by China Worldbest relating to the sale between China Worldbest and High Fashion. The same style numbers are shown on the sales confirmations as are shown on the commercial invoices, except that the sales confirmations also include one additional style number. On the other hand, the sales confirmations make no reference to Pacific Silk and the quantities and prices recorded on the sales confirmations are different from what is stated on the commercial invoices. Exhibit A does not contain any purchase orders or sales contracts, either from Pacific Silk to High Fashion, or from High Fashion to China Worldbest. The visaed invoices attached to Exhibit A contain discrepancies between the quantities and prices on the visaed invoices and those on the commercial invoices; for example, the total price on the visaed invoices is greater than that on the China Worldbest-High Fashion commercial invoices. In addition, while the visaed invoices refer to Pacific Silk they do not quote any style numbers. Exhibit B consists of two commercial invoices, the invoice from the Chinese seller, Zhejiang Orient Co., Ltd., to High Fashion, and the invoice from High Fashion to Pacific Silk, as well as packing lists and shipping documents. The invoices reflect the same style numbers and quantities. However, Exhibit B does not contain any purchase orders. No stamped, visaed invoices from the appropriate Chinese government authority were submitted. The information submitted in Exhibit C differs from that of Exhibit B only in that copies of the visaed invoices were submitted. There are inconsistencies between the visaed invoice and the commercial invoice in regard to both quantity and total price. For example, the price reflected on the visaed invoice is greater than that on the commercial invoice between the seller and High Fashion. No purchase orders were attached to Exhibit C. The sales confirmation notice from Zhejiang Textiles Import & Export Corporation, the Chinese seller, to High Fashion is dated October 25, 1994. The commercial invoice from Zhejiang is dated January 9, 1995. The visaed invoice is dated January 5, 1995. High Fashion paid Zhejiang for the goods on July 13, 1995. Based on the information presented, Zhejiang and High Fashion are not related. Exhibit D consists of a commercial invoice from High Fashion to Pacific Silk, an invoice from the Chinese seller, Shenzen Economic Special Zone Industrial Products Trading (Group) Co. to High Fashion, and payment and shipping information. Neither purchase orders nor visaed invoices were submitted. The documentation contained in Exhibit E has no connection with to the entry to which it purports to relate. The commercial invoice submitted by protestant concerns a sale of 3,272 pieces of women’s 100 percent silk knitted blouses at a unit price of [$9.30]; the entry in question consists of 906 women’s 100 percent silk woven blouses at a different unit price. Exhibit F contains documentation relating to a three-tiered sale in which the manufacturer and High Fashion are related persons as defined by section 402(g)(1)) of the TAA. No evidence has been submitted to support the use of transaction value in this instance. No purchase orders were submitted and the quantities on the manufacturer’s commercial invoice do not correspond with the quantities on the High Fashion invoices. Exhibit G concerns a three-tiered transaction in which the sale between the manufacturer and High Fashion is between related persons. No information has been submitted to support the use of transaction value in respect of this sale. There are no purchase orders. There are inconsistencies between the quantities on the two commercial invoices and there are inconsistencies between the visaed invoices and the manufacturer’s commercial invoice. In certain instances, High Fashion purchased the merchandise in a related party sale. No information was submitted to show that the use of transaction value was acceptable. It is the position of your office that the documentation submitted by the protestant is insufficient to establish that the manufacturer-middleman sales represent the correct sales for purposes of determining the appraised value of the imported merchandise. You note that there are certain discrepancies between the manufacturers’s commercial invoices and the visaed invoices, for example, discrepancies relating to quantity, price and style number. In addition, no visaed invoices were submitted in respect of certain entries. Accordingly, you appraised the imported garments based on the price paid by the importer, Pacific Silk, to the middleman, High Fashion. ISSUE: The issue presented is whether the protested entries should be appraised on the basis of the price paid by the middleman to the manufacturer or the price paid by the protestant to the middleman. LAW AND ANALYSIS: Merchandise imported into the United States is appraised in accordance with section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (the “TAA”; 19 U.S.C. § 1401a). The primary basis of appraisement under the TAA is transaction value, defined as the “price actually paid or payable for the merchandise when sold for exportation to the United States” plus, to the extent not already included, certain statutorily enumerated additions thereto. 19 U.S.C. § 1401a(b)(1)(B). However, imported merchandise is appraised under transaction value only if, inter alia, the buyer and seller are not related, or if related, transaction value is found to be acceptable. 19 U.S.C. § 1401a(b)(2)(A)-(B). In Nissho Iwai American Corp. v. United States, 786 F. Supp. 1002 (Ct. Int’l Trade 1992), rev’d in part, aff’d in part, 982 F.2d 505 (Fed. Cir. 1992), the Court of Appeals for the Federal Circuit reviewed the standard for determining transaction value when there is more than one sale which may be considered as being a sale for exportation to the United States. In so doing, the court reaffirmed the principle of a prior case, American Air Parcel Forwarding Co. Ltd. v. United States, 11 CIT 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), that the manufacturer's price, rather than the middleman's price, is valid so long as the transaction between the manufacturer and the middleman falls within the statutory provision for valuation. Nissho Iwai, 982 F.2d at 511. In reaffirming the McAfee standard the court stated that in a three-tiered distribution system: The 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 middleman deal with each other at arm's length, in the absence of any non-market influences that affect the legitimacy of the sales price....[T]hat determination can only be made on a case-by-case basis. Id. at 509. See also, Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18, Slip Op. 93-5 (Ct. Int'l. Trade January 12, 1993). In situations involving multi-tiered sales Customs has presumed that the price paid by the importer is the basis of transaction value. In order to rebut this presumption, the importer must provide evidence that establishes that the manufacturer’s price was a statutorily viable transaction value, i.e., that the goods were "clearly destined for export to the United States" and that the manufacturer and middleman dealt with each other at arm's length, absent any non-market influences affecting the legitimacy of the sales price. Id. at 509. It is the importer's responsibility to demonstrate that the standard set forth in Nissho has been met. Headquarters Ruling Letter (HRL) 545144 dated January 9, 1994. The evidence submitted to rebut the presumption should describe the structure of the entire transaction. More particularly, in respect of the “clearly destined” standard: [T]he requestor must describe in detail the roles of all the various parties and furnish relevant documents pertaining to each transaction that was involved in the exportation of the merchandise to the United States. If there is more than one possible sale for exportation, information and documentation about each of them should be provided.² Relevant documents include, purchase orders, invoices, proof of payment, contracts and any additional documents (e.g., correspondence) which demonstrate how the parties dealt with one another and which support the claim that the merchandise was clearly destined to the United States....What we are looking for is a complete paper trail of the imported merchandise showing the structure of the entire transaction.³ 30/31:52/1 Cust. B. & Dec. at 7, 9, T.D. 96-87, General Notice, Determining Transaction Value in Multi-Tiered Transactions (footnotes omitted). In regard to the arm’s length standard, the information provided should also state the relationship of the parties. If any of the parties to the transaction are related, information should be made available which demonstrates that the related party transaction value is acceptable under 19 U.S.C. § 1401a(b)(2)(B). In regard to the first prong of the Nissho test, i.e., whether the imported merchandise was clearly destined for export to the U.S., protestant has submitted a variety of documentation, including invoices, packing lists, bills of lading, visaed invoices and payment advices relevant to the sales between High Fashion and the Chinese sellers. As noted above, Exhibit A consists of commercial invoices, sales confirmations, proof of payment, packing lists, visaed invoices, certificates of inspection, bills of lading and shipping advices relating to a three-tiered sale between Pacific Silk, High Fashion and the seller, of women’s 100 percent spun silk knitted blouses. The style numbers and quantities are identical on both sets of commercial invoices. The shipping documents indicate that the blouses were shipped by air from Shanghai directly to Pacific Silk in Secaucus, New Jersey. Exhibit A also includes sales confirmations issued by China Worldbest relating to the sale between China Worldbest and High Fashion. On the other hand, the sales confirmations contain no reference to Pacific Silk, and the quantities and prices recorded on the sales confirmations are different from what is stated on the commercial invoices. They also include one additional style number. Exhibit A does not contain any purchase orders or sales contracts, either from Pacific Silk to High Fashion, or from High Fashion to China Worldbest. In addition, there are certain discrepancies between the quantities and prices on the visaed invoices and those on the commercial invoices; for example, the total price on the visaed invoices is greater than that on the China Worldbest-High Fashion commercial invoices. Moreover, while the visaed invoices refer to Pacific Silk they do not quote any style numbers. Exhibit B also does not contain any purchase orders, nor does it contain any proof of payment information. As stated above, it is Customs’ position that documentation submitted to show that a sale was clearly destined for export to the U.S. should evidence a complete paper trail showing the structure of the entire transaction from start to finish. Proof of payment, and purchase orders from the importer to the middleman, and from the middleman to the manufacturer/seller, are an essential element of such a paper trail. Since no purchase orders have been submitted, the paper trail is not complete with respect to the entry covered by Exhibit B. In this regard, we also note that no stamped, visaed invoices from the appropriate Chinese government authority were submitted. The information submitted in Exhibit C differs from that of Exhibit B only in that copies of the visaed invoices were submitted. There are inconsistencies between the visaed invoice and the commercial invoice in regard to both quantity and total price and, as in the case of Exhibits A and B, no purchase orders were attached to Exhibit C. Exhibit D consists of a commercial invoice from High Fashion to Pacific Silk, an invoice from the Chinese seller to High Fashion, and payment and shipping information. Neither purchase orders nor visaed invoices were submitted. The documentation contained in Exhibit E has no connection with the entry to which it purports to relate. The commercial invoice submitted by protestant concerns a sale of 3,272 pieces of women’s 100 percent silk knitted blouses at a unit price of [$9.30]; the entry in question consists of 906 women’s 100 percent silk woven blouses at a different unit price. Exhibit F contains documentation relating to a three-tiered sale in which the manufacturer and High Fashion, are related persons under section 402(g)(1)) of the TAA. No evidence has been submitted to support the use of transaction value in this instance. Accordingly, the evidence is insufficient to show that the second prong of the Nissho test has been met, i.e., that the parties dealt with each other at arm’s length, absent any non-market influences that affect the legitimacy of the sales price. In addition, no purchase orders were submitted and the quantities on the manufacturer’s commercial invoice do not correspond with the quantities on the High Fashion invoices. Exhibit G also concerns a three-tiered transaction in which the sale between the manufacturer and the middleman, respectively, West Lake High Fashion Silk Textile Co. Ltd., is between related persons. No information has been submitted to support the use of transaction value in respect of this sale. There are no purchase orders. There are inconsistencies between the quantities on the two commercial invoices and there are inconsistencies between the visaed invoices and the manufacturer’s commercial invoice. In certain instances, High Fashion purchased the merchandise in a related party sale and there is no information to show that the sale was conducted on an arm’s length basis. In summary, the protestant has not provided a complete paper trail in respect of the entries in question. As explained in T.D. 96-87: An example of a complete paper trail is documentation which shows that: 1) the importer ordered 100 Style A hair driers at $6 each from the middleman on January 5, 1996 listing the required specifications; 2) the middleman ordered 100 Style A hair driers at $5 each from the manufacturer listing the importer’s specifications on January 10, 1996; 3) the manufacturer shipped 100 Style A hair driers to the importer on February 10, 1996; the packing list shows that these goods are made to the importer’s specifications; 4) on February 12, 1996, the middleman billed the importer $600 for 100 style A hair driers and the importer paid this amount by check; and 5) on February 13, 1996, the manufacturer billed the middleman $500 for 100 style A hair driers and the middleman paid this amount by check. 30/31:52/1 Cust. B. & Dec. 9, n.3, T.D. 96-87. In this instance, however, no purchase orders were submitted; moreover, there are various unexplained discrepancies in respect of the prices and quantities of the imported merchandise. In view of the foregoing, it is Customs’ position that the information submitted in Exhibits A-G does not comprise a complete paper trail with respect to the entries in question. Accordingly, the information submitted is insufficient to show that the imported merchandise was manufactured for a specific U.S. purchaser as required by Nissho. HOLDING: Pursuant to the foregoing, the protest should be denied. The importer has not provided sufficient evidence to demonstrate that the imported merchandise was clearly destined for the U.S. and that, where related, the manufacturers and High Fashion dealt with each other on an arm’s length basis. The imported merchandise was correctly appraised under the transaction value method on the basis of the price actually paid or payable by the protestant to the middleman. In accordance with section 3A(11)(b), Customs Directive 099 3550-065, dated August 4, 1993, this decision should be mailed by your office to the protestant no later than sixty days from the date of this letter. Any reliquidation of the entry in accordance with this decision must be accomplished prior to the mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS, and to the public via the Diskette Subscription Service, the Freedom of Information Act and other public access channels. Sincerely, Thomas L. Lobred Chief, Value Branch