Application for Further Review of Protest 1703-09-100143; Valuation; First Sale

HQ H083958 February 17, 2010 VAL-2 OT:RR:CTF:VS H083958 CMR CATEGORY: Valuation Port Director U.S. Customs and Border Protection 1 East Bay Street Savannah, GA 31401 RE: Application for Further Review of Protest 1703-09-100143; Valuation; First Sale Dear Port Director: This decision is in response to an application for further review of protest 1703-09-100143, filed by Neville Peterson LLP, on behalf of their client, Target Stores (hereinafter Target), against your decision to appraise four entries of various footwear based on the transaction value of the last sale in a multi-tiered sales transaction. The protest was timely filed and the application for further review was properly approved in that the port’s denial of the protest would be inconsistent with previous decisions on protests filed on behalf of Target and issued by this office. FACTS: The entries at issue all involve footwear produced in China and subject to multi-tiered transactions. The importer, Target, purchases footwear from a Hong Kong company, Kenth Limited (hereinafter Kenth). Kenth does not manufacture the footwear, but places orders with other companies to have the footwear made in accordance with Target’s specifications. In the case of the entries at issue, an unrelated company (seller) sold footwear to Kenth for export to Target. Kenth provided this company with Target’s specifications for the footwear including Target’s purchase order number, the style numbers and names Target assigns to the footwear it has ordered, and the quantity ordered. However, the seller does not actually make the merchandise. It contracted with two different factories in China to produce the actual footwear. In the case of this protest, counsel referred the port to a previously decided protest, Headquarters Ruling Letter (HQ) H017956, dated February 23, 2009, involving Target, Kenth and the same seller involved herein. In addition, the transactions involved the same kind of merchandise, i.e., footwear. To substantiate the claim that the transaction value should be based on the sale between the seller and Kenth, counsel for Target submitted, for each entry at issue: (1) The relevant entry summary, (2) Kenth’s invoice to Target, (3) Target’s purchase order to Kenth, (4) The seller’s invoice to Kenth which references the relevant Target purchase order, style names and numbers, and the quantity indicated in the referenced Target purchase order. A review of the documentation reveals that the seller with which Kenth placed orders for the footwear knows that the footwear is being produced for shipment to Target in the United States. The information provided to the seller by Kenth clearly indicates the footwear is destined for export to the United States. The protestant asserts that the transaction value of the footwear is the price actually paid or payable based on the sale between the seller and Kenth (the first sale). To this first sale price, protestant believes additions for royalties should be added to two of the entries as indicated in the chart submitted indicating the first sale price, royalty and assist. An assist cost, i.e., the value of boxes provided by Kenth to the seller is also added. We assume the royalty payments are for the same reason as given in HQ H017956. No proof of payment by Kenth to the seller was provided to the port for any of the entries at issue, nor did the protestant explain the roles of the parties in the transaction. At the request of this office, proof of payment from Kenth to the seller was provided. We note that the issue presented in this protest and the parties involved are the same as in HQ H017956 and HQ H043478, dated March 23, 2009, previously issued by this office. ISSUE: Is the sale between the seller and the middleman, Kenth, of the footwear purchased from Kenth by Target a sale for exportation to the United States for purposes of determining the transaction value of the footwear 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, the protestant has submitted for each entry at issue documents to support that a sale of merchandise occurs between the seller and the middleman. The invoices from the seller identify Kenth as the party to whom the footwear was sold (buyer), identify Target as the party to receive the footwear (recipient), and identify the actual manufacturer. Kenth’s invoices to Target identify Target as the buyer, identify the actual manufacturer, and identify Target’s purchase order numbers. The seller’s invoices also identify Target’s purchase order numbers and information identifying the footwear, so that the Target purchase order and identifying information for the footwear appears on both the seller’s invoices and Kenth’s invoices to Target. As the seller involved in the transactions at issue was one of the sellers involved in the transactions in HQ H017956, we know that Kenth and the seller of the footwear are not related based upon information presented in the previous case. However, as HQ H017956 does not identify the sellers involved therein by name, the port could not know the parties are not related without being provided that information by the protestant. 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 indeed 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)). Based on the submitted information, including the seller’s invoices which indicate that the merchandise has been sold to Kenth, it appears that the sales between the seller and Kenth were at arm’s length, were bona fide sales, and were sales for export to the United States. However, the proof of payment by Kenth to the seller for the merchandise was missing. It was this lack of proof of payment which led the port to forward this protest for decision by this office. With receipt of proof of payment from protestant’s counsel, all of the documentary evidence considered in HQ H017956 and HQ H043478 has been presented to CBP. Therefore, the decision herein follows those protest decisions issued by this office. We note that Protestant’s counsel’s submitted with the supplemental submission to the protest, dated May 11, 2009, a chart of the entries with the sales prices between Kenth and the seller, with additions to that price due to royalty payments and assists for the convenience of the port. If the port has questions with regard to the chart, it should contact protestant’s counsel. 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