Application for Further Review of Protest #2704-07-100836; bona fide sale

HQ H015414 December 30, 2010 OT:RR:CTF:VS H015414 CATEGORY: Valuation Port Director U.S. Customs & Border Protection 301 E. Ocean Blvd. Suite 1400 Long Beach, CA 90802 Re: Application for Further Review of Protest #2704-07-100836; bona fide sale Dear Port Director: This is in response to Application for Further Review for Protest 2704-07-100836 (“AFR”) filed by counsel on behalf of Sunbeam Products, Inc., regarding the appraisement of six entries of imported coffeemakers. We regret the delay in responding. FACTS: Sunbeam Products, Inc. (“Sunbeam”), the importer of record, seeks a refund for transaction values it alleges were incorrectly reported at the time of entry (the dates for the entries at issue are from November 18, 2005 through December 8, 2005). A Supply Agreement between Sunbeam (the Buyer) and The Procter and Gamble Company (“P&G”) (the Seller) signed October 17, 2005, and a “Supplemental Agreement to Trademark License Agreement”, effective June 15, 2005, between P&G (Licensor) and Sunbeam (Licensee), provide that P&G was to act as the supplier of the coffeemakers to Sunbeam for “the first up to 12 months of production” after which Sunbeam would enter into a direct customer-supplier relationship with Kwonnie Electrical Products Limited, the Chinese manufacturer, no later than 12 months from the initial production of appliances unless Sunbeam chose to terminate the agreement. The supplemental agreement provided that the cost of the coffeemakers purchased by Sunbeam was for a “maximum price” of $33 for quantities shipped to Sunbeam prior to November 1, 2005 (leaving China prior to that date), and at $29 for shipments after November 1, 2005. Furthermore, the supplemental agreement listed the maximum prices charged by P&G, and provided that once the supply shifted directly to Kwonnie, P&G would subsidize Sunbeam to achieve the “maximum price”, if necessary. The supply agreement also referred to “tooling” and that Sunbeam had no obligation relating to the tooling costs except if Sunbeam relocated production to a supplier other than Kwonnie. The supply agreement stated that the shipment terms were F.O.B. Yantian, China, with title and risk of loss passing to the Buyer when the goods pass over the ship’s rail at Yantian, China. As support that it purchased certain coffeemakers from P&G at the price of $33 each, Sunbeam submitted invoices between it and P&G. For example, for the first entry of November 18, 2005, Sunbeam submitted an invoice dated November 14, 2005 for two lines each referencing 1904 of “AT13” (believed to be the coffeemakers at issue), showing a price of $33 USD per coffeemaker F.O.B. Yantian, and referencing Order No. 5148684 and two bill of lading numbers. Further, Sunbeam provided additional invoices (referencing order no. 5148684), dated January 10, 2006, for an additional $1.82 per coffeemaker for the difference in charges for air freight versus ocean freight. Counsel states that the “shipments were shipped by air to another port” and that this amount is for the additional transportation costs, and that each of the “subject entries is referenced by the Air Waybill for that entry”. However, the importing carrier on the November 18, 2005, entry is listed as the Cosco Long Beach. No Air Waybill was submitted to the port. Sunbeam also submitted cancelled checks dated January 3, 2006 and January 13, 2006, and voucher statements showing payment of $33 USD per coffeemaker by it to P&G. Sunbeam indicated on the CF 7501 that the parties were unrelated. In addition, an invoice is submitted (relating to the invoice above) dated November 7, 2005, from Kwonnie for 1904 AT13 coffee brewing devices F.O.B. Yantian billed to P&G for 45.87, and indicating shipment directly to Sunbeam on the vessel Cosco Long Beach. A packing list referencing the same information is also dated November 7, 2005. The bill of lading for this shipment which is referenced on the P&G to Sunbeam invoice above, is submitted indicating 1904 pieces were laden on the vessel Cosco Long Beach on November 8, 2005, at the port of Yantian, China, and lists the shipper/exporter as Kwonnie and the consignee as Sunbeam. Another “Shipping Invoice” dated November 3, 2005 lists Kwonnie as the shipper and Sunbeam as the consignee for 1904 brewing devices at the price of $33 each. Additional invoices with different dates are submitted with basically the same information (except different vessels are indicated). Counsel stated that Sunbeam was not a party to the transaction between P&G and Kwonnie and was not aware of the price actually paid by P&G to Kwonnie. No purchase orders for the coffeemakers were submitted. The coffeemakers were entered, listing Sunbeam as the importer of record, at the price of $45.87 USD per unit on the CF 7501, based on the invoices between Kwonnie and P&G. Sunbeam contends that the coffeemakers were improperly entered at the price of $45.87 and that they should have been entered at $34.82 including the shipping costs. ISSUE: Whether there was a bona fide sale between Sunbeam and P&G that is the basis of appraisement of the imported coffeemakers? LAW AND ANALYSIS: The preferred method of appraising merchandise imported into the U.S. is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. 1401a). Section 402(b)(1) of the TAA provides, in pertinent part, that 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 for certain enumerated additions. 19 U.S.C. 1401a(b)(1). The "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as the "total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise...) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller." In order for imported merchandise to be appraised under the transaction value method, there must be a bona fide sale between a buyer and seller and the merchandise must be sold for exportation to the United States. The term "assist" is defined in 19 U.S.C. § 1401a(h)(1)(A) as any of the following if supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or the sale for export to the United States of the merchandise: (i) Materials, components, parts, and similar items incorporated in the imported merchandise.(ii) Tools, dies, molds, and similar items used in the production of the imported merchandise.(iii) Merchandise consumed in the production of the imported merchandise.(iv) Engineering, development, artwork, design work, and plans and sketches that are undertaken elsewhere than in the United States and are necessary for the production of the imported merchandise. In the instant case, Sunbeam contends that the price paid by it to P&G constitutes an acceptable transaction value for the merchandise under consideration. In determining whether that contention is correct, the first question to be considered is whether there were, in fact, bona fide sales between Sunbeam and P&G. In order for merchandise to be "sold" for purposes of 19 U.S.C. 1401a(b)(1), there must be a transfer of title from one party to another for consideration. VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed Cir 1999). In determining whether property or ownership in property has been transferred, CBP considers whether the alleged buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, CBP may examine whether the alleged buyer paid for the goods, whether such payments are linked to specific importations of merchandise, and whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller. See HQ 545705 (January 27, 1995). In considering whether a bona fide sale has taken place between a potential buyer and seller of imported merchandise, no single factor is determinative. Rather, the relationship is to be ascertained by an overall view of the entire situation, with the result in each case governed by the facts and circumstances of the case itself. See Dorf International, Inc. v. United States, 61 Cust. Ct. 604, 610; 291 F. Supp. 690, 694; A.R.D. 245 (1968). In the instant case, based on the transaction documents and the circumstances of the transactions, there is a question whether the transaction between Sunbeam and P&G is a bona fide sale. In both the Kwonnie invoices and P&G invoices, the terms of sale are FOB Yantian. Under a free on board contract, title and risk of loss passes from the seller to the buyer at the named destination. In this case, title and risk transferred to the buyer when the goods were delivered to Yantian. See Incoterms 2000, International Chamber of Commerce, 49 (2000). It is not entirely clear who the buyer is for purposes of the sale for exportation based upon the two types of invoices submitted. It appears that P&G and Sunbeam take title at the same time, i.e., FOB Yantian. However, it is not possible for both to receive title at the same time. This “flash” title raises questions as to P&G’s role in the transaction, especially in light of the provision in the Attachment I to the Supplemental Agreement to the Trademark License Agreement which transfers the buyer – seller relationship from P&G – Sunbeam to Kwonnie – Sunbeam anytime after the first month of production, but no later than twelve months from the start of production. No information was supplied regarding the relationship between Kwonnie and P&G. Due to the nature of the transactions and contracts, the question arises as to whether P&G may have acted as a selling agent for Kwonnie. Further, according to the supply agreement, the shipment terms between P&G (as seller) and Sunbeam (as buyer), is that the “delivery shall occur and title and risk of loss or damage shall pass to buyer when the goods pass over the ship’s rail at the port of Yantian, China.” The supply agreement indicates that Sunbeam (as the buyer) is responsible for all freight and costs. The file contains an invoice dated January 2006 for extra charges paid by Sunbeam to P&G for the difference between air and ocean freight, but none of the documents indicate that the goods were delivered via air. All of the documents seem clear that the goods were delivered as ocean freight. While the order number referenced on the January 2006 invoice for the additional air charge is the same as that referenced on the November invoice, the bill of lading clearly shows that the goods were shipped on the vessel Cosco Long Beach. So the order number could have included goods for multiple importations that are not at issue here. Further, we note that generally CBP considers international freight charges to be separate from the FOB price for goods; but, regardless, as to the costs that will be borne by the importer for such freight charges, the amount actually paid to the freight company is generally excluded from the price actually paid or payable. So, it is not entirely clear why $1.82 would be added to the price actually paid or payable. Accordingly, we find that at the time the goods were laden (which in the particular entry examined was November 8, 2005), Sunbeam had title and risk of loss to the goods at issue. It is not clear that P&G ever held title to the goods. Another question is whether, assuming the transaction between Sunbeam and P&G could be used, it represents a viable transaction value or whether certain additions must be added. We assume that the invoice price from Sunbeam to P&G was lower than the invoice price on the Kwonnie invoice as P&G was subsidizing the cost of the coffeemakers for later gain by the sale of coffee. According to the agreements P&G agreed to a maximum price which would be subsidized by P&G. Further, P&G did not obligate Sunbeam relating to tooling costs. In this case, it is not clear whether P&G provided tooling to Kwonnie, but it appears that this is a possibility. If so, this cost would be considered an assist and added to the price actually paid or payable. Accordingly, as there are numerous discrepancies in the documentation submitted, we will not disturb the decision of the port. HOLDING: The protest is hereby denied. The goods in question should be appraised at the price as entered. In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Myles B. Harmon, Director Commercial & Trade Facilitation Division