Application for Further Review of Protest 1703-08-100209; transaction value; Nissho Iwai; First Sale; related parties; men’s knit shirts

HQ H029330 January 2, 2009 VAL-2 OT:RR:CTF:VS H029330 KSG CATEGORY: Valuation Port Director U.S. Customs & Border Protection 1 East Bay Street Savannah GA 31401 Re: Application for Further Review of Protest 1703-08-100209; transaction value; Nissho Iwai; First Sale; related parties; men’s knit shirts Dear Port Director: This is in reply to the Application for Further Review of Protest 1703-08-100209 timely filed by counsel on behalf of Phillips-Van Heusen Corporation, addressing the proper method of appraisement pursuant to 19 U.S.C. 1401a for certain imported goods. FACTS: This case involves an entry of imported 100% cotton mens knit shirts. The wearing apparel was manufactured in Malaysia by Sharikat Sing Bee Industries Berhad (“Sing Bee”). The importer, Phillips-Van Heusen Corporation, purchased the garments from Ablemax Limited, the middleman. Ablemax and Sing Bee are related parties. The merchandise was entered at the price that Ablemax paid to Sing Bee plus assists provided to Sing Bee by Ablemax. Your office value-advanced the imported wearing apparel to the price paid by Phillips-Van Heusen Corporation to Ablemax. The import specialist noted on the Notice of Action (CBP Form 29) that the information submitted by the importer did not constitute a complete paper trail of the transaction. The purchase order to Ablemax was not included in the submission. In addition, questions were also raised in connection with the value of the assist and the cost of transporting the assist to the place of production. The import specialist also noted on the Protest and the Summons Information Report (CBP form 6445A) that the information provided by the protestant was insufficient to support a finding that the manufacturer and middleman role was conducted at arms length and was free from any market influences. In an e-mail dated August 26, 2008, the importer stated that it would not make a further submission on the related party issue. ISSUE: Whether the transaction between Sing Bee, the foreign manufacturer, and Ablemax, the middleman, may be used to determine the transaction value of the merchandise described above. LAW AND ANALYSIS: The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. 1401a. 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 five enumerated statutory additions. 19 U.S.C. 1401a(b). In order for imported merchandise to be appraised under the transaction value method, it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States. We will assume for the purposes of this ruling that transaction value is the appropriate basis of appraisement. In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992) and Synergy Sport International, Ltd. v. United States, 17 CIT 18 (1993), the Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, 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. Both cases involved a foreign manufacturer, a middleman, and a United States purchaser. In each case, the court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. Each court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale conducted at arm’s length, free from any non-market influences, and involving merchandise clearly destined for export to the United States at the time of the first sale. In accordance with the Nissho Iwai and Synergy decisions, we presume that transaction value is based on the price paid by the importer. In further keeping with the courts’ holdings, we note that an importer may request appraisement based on the price paid by the middleman to the foreign manufacturer in situations where the middleman is not the importer. However, it will be the importer’s responsibility to show that the “first sale” price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must present sufficient evidence that the alleged sale was a bona fide “arm’s length sale,” and that it was “a sale for export to the United States,” within the meaning of 19 U.S.C. 1401a. In Treasury Decision (“T.D.”) 96-87, 30 Cust. Bull. 52/1 (January 2, 1997), CBP set forth the documentation and information needed to support a ruling request that transaction value should be based on a sale involving a middleman and the manufacturer or other seller rather than on the sale in which the importer was a party. CBP advised that the importer must provide a description of the roles of the parties involved and must supply relevant documentation addressing each transaction that was involved in the exportation of the merchandise to the United States. The documents may include, but are not limited to purchase orders, invoices, proof of payment, contracts, and any additional documents (e.g. correspondence) that establishes how the parties deal with one another. The objective is to provide CBP with “a complete paper trail of the imported merchandise showing the structure of the entire transaction.” If such information is unavailable the ruling should so provide. T.D. 96-87 further provides that the importer must also inform CBP of any statutory additions and their amounts. If unable to do so, the sale between the middleman and the manufacturer cannot form the basis of transaction value. According to Nissho Iwai, in order for a transaction to be viable for transaction value purposes, it must be a sale negotiated at arm’s length, free from any non-market influences. There is a presumption that a transaction will meet this standard if the buyer and seller are unrelated. See T.D. 96-87, supra. In this case, the importer acknowledges that the sale is between related parties. As evidence that the relationship has not affected the price, the importer submitted two affidavits, of Mr. Andrew Lee, Executive Vice President of global sourcing for Phillips Van-Heusen and of Ms. Winne Lee, Group Vice President of the Calvin Klein Division of Phillips Van-Heusen Corporation. Both affidavits conclude that the mark-up of 8.2 percent of the selling price or 9 percent of costs, is consistent with or perhaps lower than the mark-ups that Phillips is accustomed to paying for apparel produced in the Far East. Transaction value between a related buyer and seller is acceptable if the importation meets either of two tests: 1) circumstances of sale or 2) test values. The circumstances of sale test must be applied on a case-by-case basis. As provided in 19CFR 152.103(l), the following circumstances demonstrate that the relationship has not influenced the price: (1)the price was settled in a manner consistent with the normal pricing practices of the industry in question; (2) the price was settled in a manner consistent with the way the seller settles prices for sales to buyers who are not related to it; or (3) the price is adequate to ensure recovery of all costs plus a profit that is equivalent to the firm’s overall profit realized over a representative period of time in sales of merchandise of the same class or kind. When the importer claims that transaction value is acceptable because the transfer price was settled in a manner consistent with the normal pricing practices of the industry in question, the importer must have objective evidence of such practices and present evidence that the transfer price was settled in accordance with these industry pricing practices. In its memorandum in support of the application for further review, the protestant submitted copies of purchase orders, commercial invoices, a debit note, proof of payment, and the bill of lading, as well as certain information regarding the value of the assist. The information submitted supports a finding that the merchandise was clearly destined for export to the United States. However, the information submitted is insufficient to support a finding that the sale between the manufacturer and the middleman was an arm’s length sale in accordance with the standard articulated by the court in Nissho. 982 F.2d at 509-510. No information regarding the circumstances of sale was submitted, nor was any information on test values provided. See 19 U.S.C. 1401a(b)(2)(B); 19 CFR 152.103(j)(2). The only information submitted by the protestant in regard to the related party issue consists of two affidavits of its own employees. Standing alone, this information is insufficient to satisfy the circumstances of the sale test for determining the acceptability of a related party price. Similarly, no information in respect of test values was available. Accordingly, the goods may not be appraised under transaction value on the basis of the “first sale,” the price paid by the middleman to the manufacturer because the protestant has failed to demonstrate that the price actually paid or payable was not affected by the relationship between the parties. HOLDING: The protest should be denied. Based on the evidence presented, we find that the imported goods may not be appraised under transaction value on the basis of the “first sale,” the price paid by the middleman to the foreign supplier. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, 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 or entries in accordance with the decision should be accomplished prior to mailing of this decision. Sixty days from the date of this decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Myles B. Harmon, Director Commercial & Trade Facilitation Division