Application for Further Review of Protest 4601-11-102183; Method of Appraisement

HQ H219520 April 1, 2014 VAL OT:RR:CTF:VS H219520 HkP CATEGORY: Valuation Port Director Port of New York/Newark U.S. Customs and Border Protection 1100 Raymond Boulevard Newark, NJ 07102 RE: Application for Further Review of Protest 4601-11-102183; Method of Appraisement Dear Port Director: This is in response to the Application for Further Review of Protest 4601-11-102183, submitted on behalf of LF Beauty, Ltd. (“LFB”). At issue is the proper method of appraisement of bags imported from Hong Kong. FACTS: The importer, LFB, imported various types of bags from Hong Kong. There are twelve entries at issue, made between September 9, and December 3, 2010, which list LFB as the non-resident importer, located in Hong Kong, and its U.S. customer as the ultimate consignee. The declared values for all entries were the prices at which LFB sold the bags to its U.S. customer, adjusted to account for international transportation, duties, fees, insurance and clearance. The entries were liquidated between July 22, and October 14, 2011, based on the declared value. The importer timely filed its Protest and Application for Further Review on December 27, 2011, on the basis that the entries should have been appraised based on the prices paid by the importer, LFB, to unrelated sellers in Hong Kong and China. According to the information submitted, LFB received purchase orders from its U.S. customer and issued parallel purchase orders to unrelated sellers in Hong Kong or China. LFB’s purchase orders designated the United States as the location to which the goods should be shipped, and listed the U.S. customer’s purchase order and item numbers. LFB purchased the merchandise from the sellers on Free on Board (“FOB”) Hong Kong or China port terms of sale and resold it to its U.S. customer on Delivered Ex Quay (“DEQ”) (Duty Paid) New York terms. Under FOB terms of sale, the seller agrees to deliver the goods onboard the overseas vessel at the named port and is responsible for loss or damage until the goods pass the ship’s rail. A DEQ term of sale means that the seller agrees to deliver the goods to a named point on the quay at the named destination port, usually a Customs warehouse. The seller is responsible for loss and damage until delivery at the destination port. The seller may or may not pay the duty, taxes and other import charges. See Incoterms® 2000. In this case, the importer paid the duty. Counsel provided documents detailing the transactions underlying two of the 12 entries covered by the protest as representative of all the entries. Both documented entries originate from the same purchase order from the U.S. customer, the number of which is listed on the relevant documents. Entry One: (1) Hong Kong seller, New China Bags Manufacturing Ltd., FOB Hong Kong invoice to LFB for HK $2,895,541, which references Purchase Order (“PO”) 427141; (2) LFB’s PO to the Hong Kong seller, with FOB China terms of sale, which references PO 427141; (3) proof of payment by LFB to the Hong Kong seller for the invoiced amount; (4) a way bill identifying LFB as the shipper and its U.S. customer as the ultimate consignee, and the place of loading as a Chinese port and the place of delivery as New York; (5) LFB’s DEQ (Duty Paid) New York invoice to the U.S. customer, which references PO 427141; and (6) the U.S. customer’s PO, number 427141, to LFB. Entry Two: (1) Hong Kong seller, Glotia Manufacturing Co. Ltd., FOB China invoice to LFB for HK $1,517,100, which references PO 427141; (2) LFB’s PO to the Hong Kong seller, with FOB China terms of sale, and which references PO 427141; (3) proof of payment by LFB to the Hong Kong seller for the invoiced amount; (4) a way bill identifying LFB as the shipper, its U.S. customer as the ultimate consignee, place of loading as a Chinese port, and the place of delivery as New York; (5) LFB’s DEQ (Duty Paid) New York invoice to the U.S. customer, which references PO 427141; and (6) the U.S. customer’s PO, number 427141, to LFB. Counsel also submitted the Entry Summaries (CBP Form 7501s) for all twelve entries and the supporting invoices from various sellers in Hong Kong and China, most with FOB Hong Kong terms of sale. Some invoices are in Chinese and we are unable to read them to determine the terms of sale, and some do not reference the relevant POs. The Port has advised this office that it has no other information. ISSUE: Whether the imported merchandise may be appraised based on the price paid to the unrelated sellers in Hong Kong and China. 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. 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 a seller, and it must be a sale for exportation to the United States. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the Court of Appeals for the Federal Circuit (CAFC) 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)). Counsel argues that the merchandise should be valued at the prices paid to the unrelated sellers in Hong Kong and China, as those sales were sales for exportation to the United States. According to Counsel, the sales by the protestant to its U.S. customer, declared by the importer upon entry and used by the Port to liquidate the merchandise, were domestic sales because title did not pass to the customer until the merchandise was delivered to the specified U.S. destination. In support of this argument, Counsel points out that the sellers’ invoices are addressed to the protestant, refer to LFB’s U.S. customer’s purchase order and item numbers, and have “ship to” addresses in the United States. In addition, counsel states that the protestant and the sellers are not related and there are no assists, royalties or proceeds remitted to the sellers. Counsel cites Synergy Sports International Ltd. v. United States, 17 Ct. Int’l Trade 18 (1993), in which the court stated in relevant part: In short, prior case law directs Customs to rely on the sale between the middleman and the manufacturer to determine transaction value if the sale falls under the statute. Thus, the United States Customs Service erred when it valued the imported merchandise at the price paid by the U.S. customer to the importer, rather than the price paid by the importer to the manufacturer. In Synergy, the non-resident importer attempted to enter merchandise at the price paid to the manufacturer, adjusted as appropriate, but the Customs Service revalued the merchandise at the price at which the U.S. customer bought the goods from the importer. In deciding in favor of the importer, the court noted that there had been no allegation that the price paid by the importer, Synergy, to the Chinese manufacturer was artificially low due to a lack of arm's-length bargaining or nonmarket conditions. Moreover, the court found that the merchandise involved was clearly destined for exportation to the United States. In this case, some of the merchandise was bought on FOB foreign port (Hong Kong or China) terms of sale (although shipped from China in all cases), and was sold by the importer to the U.S. customer on DEQ (Duty Paid) New York terms of sale, such that the importer bore the risk of loss from the foreign port until the goods were delivered ex quay in New York. In the absence of written instructions to the contrary, it is commonly accepted that title passes simultaneously with the assumption of risk of loss. That is the case with some of the transactions here. Accordingly, it appears that some of the merchandise was purchased in a bona fide sale. In addition, that merchandise was clearly destined for exportation to the United States, as evidenced by the fact that it was shipped directly from China to New York, and by the references to the U.S. customer’s purchase order and item numbers in the orders placed with the sellers. Given these facts, we find that some of the transactions between the importer and the sellers appear to be statutorily viable sales, that is, bona fide sales for exportation to the United States. See Synergy supra. We do not find this to be the case for the transactions with invoices in Chinese as we are unable to determine the terms of sale in those situations. Based on these facts, we find that the merchandise sold to the importer pursuant to FOB Hong Kong or China port terms of sale, and resold by the importer under DEQ (Duty Paid) New York terms of sale to its U.S. customer, may be appraised using the sales between the sellers in Hong Kong and China and the importer, provided both sales are substantiated by invoices in English. HOLDING: Based on the facts in this case, the merchandise sold pursuant to FOB Hong Kong or China port terms of sale, and resold under DEQ (Duty Paid) New York terms of sale, may be appraised using the FOB Hong Kong or China port sales, provided both the sales are substantiated by invoices in English. This Protest should be granted in part and denied in part. In accordance with the Protest/Petition Processing Handbook (CIS HB, December 2007), 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 the mailing of the decision. Sixty days from the date of the decision, the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel and to the public 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