Protest No. 0712-10-100195; Transaction Value; Sold for Exportation to the United States

HQ H130311 April 26, 2011 OT:RR:CTF:VS H130311 BGK Port Director U.S. Customs and Border Protection 237 West Service Road Champlain, New York 12919 Re: Protest No. 0712-10-100195; Transaction Value; Sold for Exportation to the United States Dear Port Director: This is in response to the Application for Further Review of Protest No. 0712-10-100195, which pertains to the proper valuation of apparel imported into the U.S. after transiting a Canadian warehouse. Purchase orders, invoices, shipping documents, and proof of payments were submitted for our review. FACTS: The instant protest covers one entry entered on June 16, 2010 and liquidated on September 10, 2010. We note the protest was timely filed. Jammers USA, d/b/a “Dots and Dreams”, (Jammers USA) is a wholly owned subsidiary of Jammers Apparel Group (Jammers Canada), a Montreal based apparel company for children and toddlers. The facts are presented by Jammers USA as follows: Jammers maintains an extensive warehouse at its Montreal headquarters from which it distributes wearing apparel to customers in Canada. The company also has a dedicated and segregated area of the warehouse from which the company distributes to customers in the U.S. Jammers USA maintains a warehouse in Plattsburgh, New York from which the company distributes to its U.S. customers on an F.O.B., Plattsburgh basis. Jammers USA states that it receives purchase orders from U.S. customers in hard copy, then collects the purchase orders and issues a purchase order in the name of “Dots and Dreams” to the foreign sellers in India and China. While the protest and the majority of the purchase orders and invoices reference a supplier in India, a few orders are supplied from China. In footnote 2 of Jammers USA’s protest it states that “Exhibit A is a purchase order issued in hard copy by a small U.S. retailer, but Jammers USA also states that retailers no longer issue purchase orders, but issue sales forecasts electronically. In the instant case, all of the retailers issued purchase orders to Jammers USA/Dots and Dreams.” In a supplementary letter, dated August 17, 2010, issued by Jammers USA in response to a Request for Information, CBP Form 28, issued by your office counsel for Jammers USA states that the reason why purchase orders are dated after the merchandise arrived in Canada was because of the current trend of retailers issuing forecasts initially and only later issuing purchase orders. Much description is given about this practice as a trend, however, no information was provided about Jammers USA use of the practice. Nor were any samples provided of any print outs from a forecast system maintained by Jammers USA. It is then stated that the foreign seller issues a vendor invoice to Jammers USA, however, we note that the invoice is addressed “Attn:” to the foreign vendor, and is on Dots and Dreams letterhead. A second commercial invoice is labeled “invoice” and is signed by a representative of the foreign vendor. This invoice is to Jammers, Lachine, Quebec. It lists the “Final Destination” as Canada, as well as the “Country of Destination”. This invoice has no indication that the ultimate destination is the U.S. We also note that a shipping document from Prime Freight Logistics Inc. lists India as the foreign port of lading and Montreal as the destination. Jammers USA states that “The commercial and shipping documents all demonstrate that the styles, sizes and quantities of the goods for exportation to the United States were known, shown and reflected on a constant basis to the United States.” Jammers USA contends that the Dots and Dreams line is sold exclusively in the United States. However, we note that the Dots and Dreams website has contact information for distributors in both Vancouver and Toronto, and a packing document was provided in which the purchaser is a U.S. retailer, and the letterhead is “Dots and Dreams” with Jammers Canada’s address. It is also stated that “[t]he specifications for the goods indicated that the goods were to be labeled for sale in the United States, and the goods were so labeled.” Jammers USA states that they were labeled in accordance with the requirements of the Federal Trade Commission and pursuant to the regulations implementing the Textile Fiber Products Identification Act. It is claimed that the goods cannot be sold in Canada because the labels do not feature a “CA” number and are not labeled bilingually. No label or copy of a label was submitted for our review. It has been stated that Jammers Canada acted as the “de facto” buying agent for Jammers USA in that “[i]t assisted in forwarding the purchase order to the Indian seller, it assisted in handling international banking arrangements, and it assisted in arranging the transportation of the goods. It also warehoused the goods temporarily in Canada, pending delivery to Jammers USA/Dots and Dreams’ inventory in Plattsburgh, New York.” It is stated earlier in the protest that “Jammers USA maintains a leased inventory, at Plattsburgh, New York, of goods which are destined for sale to United States retail stores.” The role of Jammers Canada is not clear from the provided information or documents, and no agreements between Jammers Canada and Jammers USA have been provided. Purchase orders, both sets of vendors’ invoices, and Canadian customs documents were submitted for our review. Only one purchase order from a U.S. customer was submitted; the remaining purchase orders are those from Jammers USA to the foreign vendors. In the majority of the cases, but not all, the purchase order from Jammers USA to the foreign vendor matches the “vendor’s invoice” printed on Dots and Dreams letterhead (hereinafter D&D invoice). In cases where the D&D invoice does not match the Jammers USA purchase order, the foreign vendor’s invoice matches the D&D invoice, not the Jammers USA purchase order. The quantity entered into the U.S. does not match the purchase order or D&D invoice for any of the style numbers. The quantity entered into Canada does not match the purchase order or D&D invoice in three out of the eight style numbers for which Canadian customs documents were provided. Canadian customs documents were not provided for every style number. Many of the foreign vendors’ invoices, which were all addressed to Jammers Canada, (and resultantly, the Canadian customs documents) contain style numbers for which there are no Jammers USA purchase orders, along side style numbers ordered by Jammers USA. The proof of payments provided show payment from Jammers Canada to the foreign vendor. Jammers USA contends that the appropriate value for the merchandise is the price paid between Jammers USA and the foreign vendor. Your office liquidated the entries at the price paid by the U.S. customers to Jammers USA, and stated it is “[U.S. Customs and Border Protection’s (CBP’s)] position that when the goods are exported from India they are not clearly destined to the United States.” ISSUE: What is the proper method of valuation for the apparel at issue? 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. 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 five enumerated statutory additions. See 19 U.S.C. § 1401a(b). In order for imported merchandise to be appraised using the transaction value method, it must be the subject of a bona fide sale between a buyer and a seller, and the sale must be for exportation to the United States. Assuming a bona fide sale exists, we must determine whether it is a sale for exportation to the United States. Merchandise must be destined for export to the United States at the time of the sale for it to be considered sold for exportation. See, Headquarters Ruling Letter (HRL) 546427 (citing HRLs 544973 dated January 11, 1993 and 542310 dated May 22, 1981). CBP hesitates to find a sale for export where merchandise is not shipped directly to the U.S. See HRL 563420, dated April 14, 2006. The presumption is that merchandise shipped to a foreign party and location is not sold for export to the U.S. Id. In HRL 545254, dated November 22, 1994, Customs ruled that a sale between a foreign and U.S. company, which included an intermediate shipment through a Canadian bonded warehouse operation, was a sale for exportation to the United States, and transaction value was determined to be the proper method of appraisement. In HRL 525254, the goods were shipped in bond in Canada, bore the logo of a U.S. company, and the commercial invoices stated the logo and “USA”. A sale for exportation was also found in HRL 563420, when the purchase orders stated the goods were only to be sold in the U.S., the shipping documents listed the address of ultimate delivery as the U.S., the purchase orders and invoices corresponded with later documents as to quantity and article, the goods entered Canada under a duty relief license or into a bonded warehouse, and all labels were in accordance with U.S. law and regulation, and would not satisfy Canadian regulations. In H067846, dated March 15, 2010, it was held that goods were clearly destined for the U.S. when the full paper trail indicated that the destination was the U.S. (purchase orders to vendors corresponded to purchase orders from U.S. customers and invoices specified “DDU Champlain, New York”). In HRL 546427, dated December 19, 1996, apparel was shipped from Germany to Canada before being shipped to the U.S. The goods were placed in a bonded warehouse where they underwent quality control. Any goods intended for the U.S. which did not pass inspection either entered the commerce of Canada or were returned to Germany. It was determined that the goods were not sold for exportation to the United States. In HRL H009727, dated February 5, 2008, it was held that goods were not sold for exportation to the United States, even when separate purchase orders and distinct product codes were used for merchandise destined for the U.S., the merchandise was stored in a bonded warehouse, and defective goods were returned to the seller or destroyed, but the goods were held in inventory at the warehouse and were not sold in response to a specific order from a U.S. customer. In HRL 547825, dated July 16, 2001, a Canadian sister company consolidated the orders for Canada and the U.S. company when placing orders with their buying agent or foreign suppliers. The goods were then shipped to a warehouse outside Montreal as a consolidated order for temporary storage and deconsolidation. The goods entered Canada under a Canadian Duty Deferral Program that deferred the payment of duty until the goods were sold in Canada, and duty was not owed if the goods were exported. It was held that the goods were not sold for exportation to the U.S. because there was nothing in the commercial documents from the manufacturers that referenced the U.S. as the destination, there was nothing unique about the merchandise, and the duty deferral program was used, not a bonded warehouse. Nothing about the duty deferral program guaranteed the goods would be exported from Canada. Most similar to HRL 547825, the goods in this case enter Canada for consumption and duty is paid (later subject to drawback). In addition, the goods are stored in a general warehouse in Canada. There are also inconsistencies as to whether the U.S. customers’ purchase orders initiated the transactions or the goods were purchased (or leased) by Jammers USA for their inventory. Jammers USA Protest 2. It is argued that the goods can only be sold in the U.S. because they are only labeled in English and, therefore, do not meet the bilingual requirements to be sold in Canada. They are also claimed to lack a CA number. However, no sample of the label was provided. Additionally, according to the Canadian Labelling Requirement Regulations, (Textile Labelling Act) SOR/87-247; and SOR/94-247 (Can), there may be some exceptions to the bilingual requirement. Also similar to HRL 547825, neither the invoices from the foreign vendors or the shipping documents refer to anything about shipment beyond Canada. The Jammers USA purchase orders and D&D invoices are the only commercial documents that list delivery to the U.S. There is also no direct connection between the Jammers USA purchase orders and entry into the U.S., as the entered quantities do not equal the ordered amounts for any style number, even when the ordered quantity equals the quantity entered into Canada. There also appears to be commingling of Canadian and U.S. orders, as some of the commercial invoices reference style numbers for which no Jammers USA purchase order exists, along side ordered style numbers. In this case, it has not been shown that the sale from the foreign factory to Jammers USA was a sale for exportation to the United States. Instead, the sale for exportation on which to base appraisement of the merchandise is the sale between Jammers USA and the U.S. customers. Contrary to Jammers USA claims, the sale from Jammers USA to the U.S. customers does not constitute a domestic sale. Rather, the sale from Jammers USA to the U.S. customer is considered to originate in Canada. This is supported by the packing list from “Dots and Dreams” to the U.S. retailer with Jammers Canada’s address in the letterhead. HOLDING: As the claimed sale between the foreign vendors and Jammers USA was not a sale for exportation to the United States, it may not be used as the basis of appraisement. The protest should be denied. In accordance with the Protest/Petition Processing Handbook (CIS 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 this 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