Protest and Application for Further Review 4601-08-100527; First Sale; Insufficient Documentation

HQ H036078 December 18, 2009 VAL-2 OT:RR:CTF:VS H036078 CMR CATEGORY: Valuation U.S. Customs and Border Protection Protest and Control 1100 Raymond Boulevard Suite 402 Newark, NJ 07102 RE: Protest and Application for Further Review 4601-08-100527; First Sale; Insufficient Documentation Dear Port Director: This is in response to Protest and Application for Further Review 4601-08-100527 which was filed by counsel, on behalf of Maxy Trading Corporation, against your decision to appraise and liquidate an entry of women’s apparel based on the transaction value between the importer and the middleman and not based on the transaction value between the manufacturer and the middleman. The protest was timely filed and the application for further review was properly approved. FACTS: The entry at issue contained eight different styles of garments in varying amounts. The merchandise at issue consists of certain women’s jackets and pants entered in October 2006. The importer, Maxy Trading Corporation, purchased the apparel from a trading company (middleman) in Ningbo, China. The middleman contracted with manufacturers for the production of the apparel. For the entry at issue, two manufacturers were utilized to produce the apparel. One produced two of the styles and the other produced the remaining six styles. The producers are located in cities other than Ningbo, but are nearby. The port liquidated the entry basing the appraisement on the price paid by the importer to the middleman. The port rejected the importer’s claim that the merchandise should be appraised based upon the transaction between the middleman and the manufacturers. The reason for the port’s rejection of the claim was a belief that insufficient evidence had been presented to Customs and Border Protection (CBP) to substantiate the claim. The importer, through counsel, filed a protest against your liquidation of the merchandise utilizing the sale between the middleman and the importer as the basis for appraisement. The importer claims appraisement should be based upon the sale between the manufacturers and the middleman. To support the “first sale” claim, counsel for the importer submitted (1) a copy of the purchase order from Maxy Trading to the middleman which sets forth the order number, the style numbers and affiliated purchase order numbers, the quantity for each style, the unit prices, the total amount due and a brief description of each style garment (dated July 30, 2006); (2) a copy of the sales contract between the middleman and Maxy Trading with the same information as contained in the purchase order (dated July 30, 2006); (3) copies of the purchase and sales contracts between the middleman and the manufacturers; (4) translated copies of the manufacturers’ invoices to the middleman; (5) copies of receipts for the middleman’s payment to the manufacturers; (6) a copy of the middleman’s invoice to the importer; (7) proof of payment by the importer to the middleman; (8) a copy of the CBPF 7501 (entry summary document); and (9) a copy of the bill of lading showing the middleman as the shipper, the importer as the consignee, the port of lading as Shanghai and place of delivery as New York. In addition to the documents provided by counsel, the file contains the following relevant documents: the packing list of goods shipped from the middleman to the importer, the Textile Export License showing the middleman as the exporter and the importer as the consignee (but the license was issued only for one style (velour pants)), and the Certificate of Origin issued by the China Council for the Promotion of International Trade (Ning Bo) showing the middleman as the exporter and the importer as the consignee. ISSUE: Has the importer provided sufficient evidence to support appraisement based upon the sale between the manufacturer and the middleman for purposes of determining the transaction value of the apparel at issue under 19 U.S.C. § 1401a(b)? 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 (TAA; 19 U.S.C. § 1401a). The preferred method of appraisement is transaction value, which is defined as the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus certain statutory additions. 19 U.S.C. § 1401a(b)(1). For the purpose of this protest we have assumed that transaction value is the appropriate basis of appraisement. In Nissho Iwai American Corp. v. United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed 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 for exportation to the United States. The case involved a foreign manufacturer, a middleman, and a United States purchaser. The court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. The court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm’s length, free from any nonmarket influences, and involving goods clearly destined for the United States. See also, Synergy Sport International, Ltd. v. United States (Ct. of Int’l Trade, 1993). In accordance with the Nissho Iwai decision and our own precedent, we presume that transaction value is based on the price paid by the importer. In further keeping with the court’s holding, 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 is the importer’s responsibility to show that the "first sale" price is acceptable under the standard set forth in Nissho Iwai. 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, dated January 2, 1997, 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." 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. In this case, it appears that prior to liquidation, the importer did not provide the necessary documentation to support its claim of “first sale” price for appraisement purposes. However, a review of the documentation submitted with the protest and application for further review does find support for the protestant’s claim that appraisement should be based upon the sales between the manufacturers and the middleman. The submitted documents support the claim that the middleman contracted for production of the style numbers and quantities ordered by the importer, Maxy Trading, from the middleman. The contracts between the manufacturers and the middleman which were in Chinese; however, translations of these contracts were submitted to this office. See Headquarters Ruling Letter (HQ) 546450, dated July 3, 1997, with regard to the use of a “first sale” for transaction value, this office clearly stated that “[c]omplete English translations of the pertinent documents would be required.” See also HQ H036556, dated February 12, 2009, discussing the necessity of presenting English translations of foreign language documents submitted to CBP It is asserted that the middleman and the manufacturers are unrelated parties. In T.D. 96-87, we stated that “[i]n general, Customs will consider a sale between unrelated parties to have been conducted at ‘arm’s length.’” However, we must determine if a “sale” has occurred. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the Court of Appeals for the Federal Circuit found that the term “sold” for purposes of 19 U.S.C. § 1401a(b)(1) means a transfer of title from one party to another for consideration, (citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). The documentation submitted shows a transfer of property for consideration from the manufacturers to the middleman. We have copies of the commercial invoices identifying the specific merchandise by purchase order, style number, quantity and description. In addition, these invoices, addressed to the middleman, indicate the merchandise is going from Shanghai to New York, U.S.A. The receipts for payment from the manufacturers to the middleman correspond to the amounts on the invoices and serve as proof of payment by the middleman to the manufacturers for the merchandise in the entry. The only irregularity in the documents submitted is that one of the contracts between the middleman and a manufacturer predates the purchase order between Maxy Trading and the middleman by two days. Counsel for the importer informed us that Maxy Trading also places orders by telephone which are consequently confirmed with the formal purchase order. In this case, we accept the explanation provided for the apparent discrepancy in the sequence of the formal purchase order between Maxy Trading and the production contract between the middleman and one of the producers. Based upon our review of the documentation in the file, we are satisfied that the sales between the manufacturers and the middleman were at arm’s length, were bona fide sales, and were sales for export to the United States. HOLDING: The protest is allowed. In accordance with the Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP 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 and Trade Facilitation Division