Application for Further Review of Protest No. 2704-23-164798; Dreamwear Inc.; First Sale Valuation; Transaction Value

H337689 October 6, 2025 OT:RR:CTF:VS H337689 RRB CATEGORY: Valuation Center Director Apparel, Footwear & Textiles Center U.S. Customs and Border Protection 4813 Pacific Hwy E Fife, WA 98424 Attn: Angela Hultz, Supervisory Import Specialist; Stephen Bono, Import Specialist RE: Application for Further Review of Protest No. 2704-23-164798; Dreamwear Inc.; First Sale Valuation; Transaction Value Dear Center Director, This is in response to the Application for Further Review (“AFR”) of Protest No. 2704-23-164798, timely filed on February 22, 2023, by Sharretts, Paley, Carter & Blauvelt, P.C., on behalf of their client, Dreamwear Inc. (“Protestant” or “Dreamwear”), concerning the valuation of the subject merchandise. We note that the subject protest involves the same importer, the same first sale issue and some of the same middleman vendors and factory sellers as those addressed in Headquarters Ruling Letter (“HQ”) H332358, dated June 4, 2025, which was issued in response to the AFR of Protest No. 4601-23-134023. In both matters, Dreamwear requested the opportunity for a conference with our office prior to issuing a decision. Pursuant to this request, our office held a teleconference meeting on March 26, 2025, with Dreamwear and their counsel. We further note that this protest has been designated as a lead protest, with one other protest pending under this protest. FACTS: The lead protest concerns ten entries of clothing that were entered between January 4, 2019, and April 23, 2019, by Dreamwear, and liquidated on August 26, 2022. The entries at issue all involve clothing produced in China, some of which were also subject to multi-tiered transactions. Non-First Sale Entry Lines Dreamwear asserts that some of the non-first sale entry lines in this protest were inadvertently included in U.S. Customs and Border Protection’s (“CBP”) reliquidation of certain entries to disallow Dreamwear’s first sale claim. According to Dreamwear, “[s]uch rate advances by Customs were based on the mistaken belief that these good [sic] were entered at a reduced (first cost) value when they were actually entered at the full transaction (Free on Board (“FOB”)) cost.” In support of this claim, Dreamwear submitted the following documentation: • A summary of the dutiable value paid by Dreamwear for the subject entry line(s) • Dreamwear’s associated purchase order reflecting the agreed upon FOB value of the subject merchandise. • The arrival notice. • The bill of lading. • The CF 7501 presented at the time of entry. • The commercial invoice from the vendor to show that the invoiced and declared values are the same. • The packing list. • The receiving records. • The proof of payment of the entered value. These entries were rate advanced based on technical assistance provided to the Apparel and Footwear Textiles Center of Excellence and Expertise (“CEE”) by CBP’s Trade Regulatory Audit (“Regulatory Audit”). First Sale Entry Lines In connection with the protested entries, the importer, Dreamwear, purchased clothing from four “middleman” vendors, Wuxi Xinhexin International Trade Co., Ltd. (“Wuxi Xinhexin”); Lucky Zone Development Limited (“Lucky Zone”); Windus Enterprises Shanghai Inc. (“Windus”); and All Success International Enterprise Limited (“All Success”). The middleman vendors did not manufacture the clothing items, but placed orders with a factory seller, some of which were related parties. For the merchandise that Dreawear purchased from Wuxi Xinhexin, Wuxi Xinhexin placed orders with a related factory seller, Wuxi Sanxing Textile Co. Ltd. (“Wuxi Sanxing”). For the merchandise that Dreamwear purchased from Lucky Zone, Lucky Zone placed orders with a related factory seller, DongGuan Lucky Zone Garments and Accessories Co. Ltd. (“DongGuan Lucky Zone”). For the merchandise that Dreamwear purchased 2 from Windus, Windus placed orders with a seller that is purported to be unrelated, Jiangyin Jinze Garment Co., Ltd. (“Jiangyin Jinze”). Lastly, for the merchandise that Dreamwear purchased from All Success, All Success placed orders with a seller that is purported to be unrelated, Brilliant HK Factory (Cambodia) Co. Ltd. (“Brilliant HK”). Wuxi Xinhexin (middleman vendor)/Wuxi Sanxing (related factory seller) According to counsel for Dreamwear, Wuxi Xinhexin and Wuxi Sanxing are related by one common shareholder. Counsel claims that the first sale valuation of the entries at issue based upon the sales price between Dreamwear’s middleman vendor, Wuxi Xinhexin, and Wuxi Sanxing, should have been used. CBP determined that because Dreamwear’s multi- tiered import transactions involving Wuxi Xinhexin and Wuxi Sanxing did not meet the requirements of Treasury Decision (“T.D.”) 96-87, dated January 2, 1997, the first sale entry line items should have been entered at the price actually paid or payable between the importer and middleman vendor, not based on the sales prices between the middleman and the factory related to the middleman. In support of this protest, counsel for Dreamwear provided various documents concerning two representative transactions with Wuxi Xinhexin as the middleman vendor and Wuxi Sanxing as the related factory seller. Some of the specific documents include the following: • An organizational chart identifying Wuxi Xinhexin as the middleman vendor and Wuxi Sanxing as the related factory seller. • Documents, some of which were not translated into English, in support of Dreamwear’s claim that the protested entries included two bona fide sales for export to the United States, including the following: o Dreamwear’s purchase orders to the middleman vendor, Wuxi Xinhexin, for the underlying merchandise, under FOB Shanghai” sales terms. o Wuxi Xinhexin’s purchase orders to Wuxi Sanxing, which were not translated into English. o Invoices from Wuxi Sanxing to Wuxi Xinhexin, which were not translated into English, and a transaction value worksheet, which according to counsel for Dreamwear, summarizes each first cost transaction and confirms that there were no assists provided by the vendor to the factory. Wuxi Xinhexin o Invoices from to Dreamwear. In support of its claims of a bona fide sale between Wuxi Xinhexin as the middleman vendor and Wuxi Sanxing as the related factory seller, counsel provided proof of payment from Wuxi Xinhexin to Wuxi Sanxing in the form of untranslated bank receipts. Counsel also provided Wuxi Xinhexin’s untranslated ledger recordings for the underlying sales to support its claim of a bona fide sale between Wuxi Xinhexin and Wuxi Sanxing. 3 To show that there were no additional expenses that should have been included in the first sale cost, counsel provided a copy of Wuxi Xinhexin’s chart of accounts. To confirm that there were two independent sales at arm’s length, counsel provided Wuxi Xinhexin and Wuxi Sanxing’s 2019 and 2020 profit and loss statements for its revenue from orders from Dreamwear. Counsel asserts that this documentation demonstrates that the factory earned a comparable profit to the middleman-parent under the “all costs plus a profit” test set forth in 19 C.F.R. § 152.103(l)(iii). Lucky Zone (middleman vendor)-DongGuan Lucky Zone (related factory seller) We note that the multi-tiered transactions at issue between Lucky Zone as the middleman vendor and DongGuan Lucky Zone as the related factory seller in the instant protest are substantially similar to those addressed in HQ H332358, in response to an AFR filed by Dreamwear regarding its first sale valuation of imported merchandise purchased from Lucky Zone as the middleman vendor, which was produced by DongGuan Lucky Zone. Counsel claims that the first sale valuation of the entries at issue based upon the sales price between Dreamwear’s middleman vendor, Lucky Zone, and DongGuan Lucky Zone, should have been used. CBP determined that because Dreamwear’s multi-tiered import transactions involving Lucky Zone and DongGuan Lucky Zone did not meet the requirements of T.D. 96-87, the first sale entry line items should have been entered at the price actually paid or payable between the importer and middleman vendor, not based on the sales prices between the middleman and the factory related to the middleman. In support of this protest, counsel for Dreamwear provided various documents concerning two representative transactions with Lucky Zone as the middleman vendor and DongGuan Lucky Zone as the related factory seller. Some of the specific documents include the following: • An organizational chart identifying Lucky Zone as the middleman vendor and DongGuan Lucky Zone as the related factory seller. • Documents, some of which were not translated into English, in support of Dreamwear’s claim that the protested entries included two bona fide sales for export to the United States, including the following: o Dreamwear’s purchase orders to the middleman vendor, Lucky Zone, for the underlying merchandise under “FOB Shenzen” sales terms. o Lucky Zone’s purchase orders to DongGuan Lucky Zone on an ex-factory basis. o Invoices from DongGuan Lucky Zone to Lucky Zone on an ex-factory basis, along with packing lists and a transaction value worksheet highlighting the subject styles at issue. Counsel claims that the transaction value worksheet summarizes the first cost transaction and confirms that the underlying transaction involved raw materials (fabric, trims, and packaging) provided by 4 Lucky Zone to DongGuan Lucky Zone free of charge. The purchase terms between Lucky Zone and DongGuan Lucky Zone to produce the apparel were “CMT,” which requires that Lucky Zone supply and deliver all the fabric, trim, and materials directly to DongGuan Lucky Zone. o Invoices from Lucky Zone to Dreamwear. In support of its claims of a bona fide sale between Lucky Zone as the middleman vendor and DongGuan Lucky Zone as the related factory seller, counsel provided proof of payment from Lucky Zone to DongGuan Lucky Zone in the form of untranslated bank receipts. Counsel also provided Lucky Zone’s ledger recordings for the underlying sales to support its claim of a bona fide sale between Lucky Zone and DongGuan Lucky Zone. To show that there were no additional expenses that should have been included in the first sale cost, counsel provided a copy of Lucky Zone’s chart of accounts. To confirm that there were two independent sales at arm’s length, counsel provided Lucky Zone and DongGuan Lucky Zone’s 2019 and 2020 profit and loss statements for its revenue from orders from Dreamwear. Counsel asserts that this documentation demonstrates that the factory realized a gross margin each year sufficient to recover all of its costs plus a profit. Windus (middleman vendor)-Jiangyin Jinze (unrelated factory seller) According to counsel for Dreamwear, Windus and Jiangyin Jinze are not related. Counsel for Dreamwear claims that the first sale valuation of the entries at issue based upon the sales price between Dreamwear’s middleman vendor, Windus, and Jiangyin Jinze, should have been used. CBP determined that because Dreamwear’s multi-tiered import transactions involving Windus and Jiangyin Jinze did not meet the requirements of T.D. 96-87, the first sale entry line items should have been entered at the price actually paid or payable between the importer and middleman vendor, not based on the sales prices between the middleman and the factory seller. In support of this protest, Counsel provided various documents concerning several representative transactions with Windus as the middleman vendor and Jiangyin Jinze as the unrelated factory seller. Some of the specific documents include the following: • An organizational chart confirming the functions of Windus as the middleman vendor and Jiangyin Jinze as the factory seller; • Documents, some of which were not translated into English, in support of Dreamwear’s claim that the protested entries included two bona fide sales for export to the United States, including the following: o Dreamwear’s purchase orders to the middleman vendor, Windus, for the underlying merchandise, under FOB sales terms. 5 o Windus’s purchase orders to Jiangyin Jinze, under “Free Carrier (FCA) Designated Warehouse” terms. o Invoices from Jiangyin Jinze to Windus, which were not translated into English. o A transaction value worksheet. oo A China export declaration. Invoices from Windus to Dreamwear, under “FOB Shanghai” terms. o Documentation that Dreamwear purports to be proof of payment from Windus to Jiangyin Jinze but which has not been translated into English. Recordation of Windus’s payment to Jiangyin Jinze in its general ledger.1 o All Success (middleman vendor)-Brilliant HK (unrelated factory seller) According to counsel for Dreamwear, All Success and Brilliant HK are not related. Counsel for Dreamwear claims that the first sale valuation of the entries at issue based upon the sales price between Dreamwear’s middleman vendor, All Success, and Brilliant HK, should have been used. CBP determined that because Dreamwear’s multi-tiered import transactions involving All Success and Brilliant HK did not meet the requirements of T.D. 96-87, the first sale entry line items should have been entered at the price actually paid or payable between the importer and middleman vendor, not based on the sales prices between the middleman and the factory seller. In support of this protest, counsel for Dreamwear provided various documents concerning one representative transaction with All Success as the middleman vendor and Brilliant HK as the unrelated factory seller.2 Some of the specific documents include the following: • An organizational chart confirming the functions of All Success as the middleman vendor and Brilliant HK as the factory seller. • Documents, some of which were not translated into English, in support of Dreamwear’s claim that the protested entries included a bona fide sale for export to the United States, including the following: o All Success’s purchase orders to Brilliant HK, under “Ex-Factory” terms. o Invoices from Brilliant HK to All Success. o A transaction value worksheet, which Dreamwear provided as a summary of the first cost transaction and confirmation that the underlying transactions involved raw material assists (fabric, trims, and packaging) that the vendor provided to the factory free of charge. o Proof of payment from All Success to Brilliant HK. 1 Dreamwear stated in its protest submission that it has included a copy of Windus’s chart of accounts to show that there were no additional expenses that should have been included in the first cost, but this document is missing from the submission and exhibits. 2 Counsel for Dreamwear explains that documentation for only one representative transaction was provided because All Success represents only a small number of Dreamwear’s overall first sale transactions. 6 While Dreamwear claims that it has included its purchase orders to All Success for the underlying merchandise, these are missing from Exhibit 6. Dreamwear further asserts that it provided All Success’ purchase, payment and freight records in order to confirm the risk of loss assumed by All Success in its transactions with Brilliant HK and to prove the accuracy of the assist costs declared at the time of entry. While Exhibit 6 appears to include purchase and payment documentation regarding trim and accessories, much of these documents are not translated into English. Consequently, we are unable to confirm the existence of the freight records. The first sale entry lines described above were rate advanced based on technical assistance provided to the CEE by Regulatory Audit based upon an audit completed on March 12, 2021, in which Regulatory Audit determined that Dreamwear’s valuation of its multitiered transactions did not meet the requirements of T.D. 96-87. Based on the foregoing, Dreamwear asserts that this documentation demonstrates the legitimacy of its first sale claims because it confirms that: 1) the goods were purchased via bona fide sales between the factory and middleman vendor and the middleman vendor and Dreamwear, respectively; 2) the underlying goods were clearly destined for the United States; 3) all transactions were at an arm’s length; and 4) there is no evidence that the first sale transactions were subject to any non-market influences. Dreamwear further asserts that this documentation demonstrates that the rate advances for certain non-first sale entry lines were erroneous. ISSUES: (1) Whether certain entry lines based upon the transaction value between the Protestant and a third-party unrelated vendor were erroneously rate advanced. (2) Whether the Protestant submitted sufficient evidence to support the use of transaction value of the entered merchandise based upon the sales between the middleman vendor and its related factory seller under the “first sale” principle of appraisement set forth in 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). 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. The term “price actually paid or payable” is defined as: 7 [T]he total payment (whether direct or indirect, and exclusive of any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation in the United States) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. 19 U.S.C. § 1401a(b)(4)(A). Non-First Sale Entry Lines Dreamwear asserts that some entry lines that were not based on first sale valuation were inadvertently included in CBP’s reliquidation of certain entries to disallow the Protestant’s first sale claims. Dreamwear explains that such rate advances by CBP were based upon what it describes as the mistaken belief that these goods were entered at a reduced first sale valuation when they were actually entered at the full transaction value based on the FOB price. In support of this claim, Dreamwear submitted various documents referenced above. Our office consulted with the CEE and Regulatory Audit to ascertain the circumstances behind the rate advances of the non-first sale entry lines. The loss of revenue for the protested entries was calculated on an entry-by-entry basis. The CEE then prorated the undervaluation and loss of revenue for the protested merchandise on an entry-by-entry basis for administrative purposes in the Automated Commercial Environment (“ACE”). This was why some lines