First Sale Appraisement; Fabric

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection H312973 March 31, 2022 OT:RR:CTF:VS H312973 JMV CATEGORY: Valuation Amit Solomon Farrow Consulting 475A Admiral Blvd Mississauga, ON L5T 2N1 Canada Re: First Sale Appraisement; Fabric Dear Mr. Solomon, This is in response to your letter received on August 11, 2020, on behalf of Nolar Industries Limited (“Nolar”). In your letter, you request a ruling pursuant to 19 C.F.R. Part 177 regarding whether the sale between the middleman, Nolar, and the foreign manufacturer qualifies as an acceptable basis for appraisement of the subject merchandise. FACTS: Nolar is a Canadian company that sells nonwoven fabrics to customers in the United States. Sales are triggered by the order from the U.S., which results in one of three scenarios listed below. In all scenarios, the specifications provided in the U.S. customer’s purchase order would designate the roll width, roll length and fabric weight. The specification allows the product to be used by the U.S. customer’s machinery. Scenario 1 The specification required by one or more U.S. customers are relayed to the Chinese supplier. The order is fulfilled, then shipped to Nolar’s warehouse in Canada. The goods are then shipped to the relevant customer in the United States for the amount required per the purchase order. The remaining product is stored in Canada until the U.S. customer orders additional product. Scanerio 2 The specification required by a U.S customer is relayed to the Chinese supplier to be shipped in a 40 foot container, which is required to fulfill the entire order. The container is shipped to Nolar Industries Warehouse in Concord, Ontario, Canada. The container is then rerouted to single customer end user in Canada. Scenario 3 The specification as per a single automotive end user in the United States is provided to Nolar, which is relayed to Nolar’s suppliers in China. The finished fabric rolls with the required specification are shipped to Nolar’s warehouse in Canada. The automotive end user’s blanket purchase order will provide instructions on the quantity and schedule (weekly or bi-weekly shipments) over a three- to six-month period. Nolar indicated that it does not conduct any processing on the subject fabric. Nolar provided invoices and purchase orders between Nolar and a Chinese supplier, and export invoices from Nolar Industries to International Automotive Components in the United States. These documents were provided to serve as a representative example of Scenario 3. ISSUE: Whether the transactions at issue may be appraised using the transaction value between the foreign manufacturer and Nolar Industries as a bona fide sale for export to the United States. 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. 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 (“CIT”), 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.” 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 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. Id. (citing J.L. Wood v. United States, 505 F.2d 1400). No single factor is decisive in determining whether a bona fide sale has occurred. CBP makes each determination on a case-by-case basis and will consider such factors as whether the purported buyer assumed the risk of loss and acquired title to the imported merchandise. While Nolar did provide this office with a variety of documents, Nolar did not meet the burden of demonstrating that the sale at issue was a bona fide sale for export to the United States. This office reached out to Nolar requesting additional information such as further details regarding the structure of the transaction, any other potential U.S. customers for the subject goods, and a description of the corporate relationship of the parties, if any. Numerous follow-up e-mails went unanswered, and the requested documentation was never provided. Therefore, by not providing sufficient information, Nolar has not established that the sale between Nolar and the manufacturer was a sale for export to the United States. HOLDING: Nolar has not established that the sale between Nolar and the foreign manufacturer is a bona fide sale for export to the United States. Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a [CBP] field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.” A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy of this ruling, it should be brought to the attention of the CBP officer handling the transaction. Sincerely, Monika R. Brenner, Chief Valuation and Special Programs Branch