Request for a Ruling regarding Women's Wearing Apparel; Appraisement; Multi-tiered Transactions.

HQ W546514 August 26, 1997 RR:IT:VA W546514 er CATEGORY: Valuation Alan G. Lebowitz, Esq. Grunfeld, Desiderio, Lebowitz & Silverman LLP 245 Park Avenue 33rd Floor New York, NY 10167-0002 RE: Request for a Ruling regarding Women's Wearing Apparel; Appraisement; Multi-tiered Transactions. Dear Mr. Leibowitz: This is in response to your request for a ruling, dated October 2, 1996 and July l 0, 1997, submitted on behalf of your client, Lane Bryant, Inc. ("Lane Bryant"), regarding the appraisement of women's wearing apparel to be imported into the U.S. under a two-tiered purchase structure. We regret the delay in responding. FACTS: Lane Bryant is an importer and retailer of ladies' apparel. Regarding the transactions at issue, Lane Bryant issues purchase orders through its agent, Valentine U.S.A. Inc. (“Valentine”). These purchase orders identify the style number of the merchandise and the quantity ordered. Valentine subsequently issues a purchase order to a Taiwanese trading company, Metromax Ltd. (“Metromax”). The trading company places an order with a Taiwanese factory to manufacture the subject garments, e.g. Hon Fang Garment Industrial Ltd. (“Hon Fang”). None of the parties to these transactions are related. Upon producing the merchandise, the factory issues an invoice to the trading company on an "FOB Taiwan ACS Warehouse" basis (ACS operates as a consolidator). Representative copies of the purchase orders and invoices from the various parties and corresponding packing lists, single country declaration, proof of payment and visaed invoices were presented with counsel's submission. ISSUE: Whether the merchandise should be appraised on the basis of the price paid by the middleman to the manufacturer or the price paid by the importer to the middleman. 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. 140I a). The preferred method of appraisement under the TAA is transaction value, defined as the 2 "price actually paid or payable for the merchandise when sold for exportation to the United States," plus certain enumerated additions thereto. 19 U.S.C. 1401a{b){l){B). However, imported merchandise is appraised under transaction value only if, inter alia, the buyer and seller are not related, or if related, transaction value is found to be acceptable. 19 U.S.C. 140la(b)(2)(A)-(B). Based on the information submitted we understand that none of the parties to these transaction s are related and, accordingly, we have assumed for purposes of this decision that transaction value is the appropriate basis of appraisement. In Nissho lwai American Corp v . United States, 786 F. Supp. 1002 (Ct. Int'l Trade 1992), rev'd in part, aff'd 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 to be for exportation to the United States. In so doing, the court stated that Customs' former policy of basing transaction value on the sale which most directly caused the merchandise to be exported to the United States proceeded from an invalid premise. Nissho Iwai, 982 F.2d 505, 51 1. Instead, the court reaffirmed the principle of E.C. McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that the manufacturer's price, rather than the middleman's price, is valid so long as the transaction between the manufacturer and the middleman falls within the statutory provision for valuation . In reaffirming the McAfee standard, the court stated that in a three-tiered distribution system: The manufacturer's price constitutes a viable transaction value when the goods are clearly destined for export to the United States, and the manufacturer and the middleman deal with each other at arm's length, absent any non-market influences that affect the legitimacy of the sales price... [T]hat determination can only be made on a case-by-case basis. id. at 509. See also, Synergy Sport International. Ltd. v. United States, 17 C.I.T., Slip Op. 93-5 (Ct. Int'l Trade January 12. 1993). As a general matter Customs presumes that the price paid by the importer is the basis of transaction value See e.g., HRL 545603 dated March 10, 1995. However, in order to rebut this s presumption and establish that the transaction between a manufacturer and a middleman, or some other sale, forms the basis of transaction value the importer must, in accordance with the court's standard in Niss h o, provide evidence that establishes that at the time it purchased, or contracted to purchase, the imported merchandise, the goods were "clearly destined for export to the United States" and that the manufacturer and middleman dealt with each other at "arm's length". Customs has held that it is the importer's responsibility to demonstrate that the standard set forth in Nissho and Synergy has been met. See e.g. HRL 545144 dated January 19, 1994. In the instant case, the presumption is therefore that transaction value is based on the price paid by the importer, Lane Bryant. As mentioned in the facts, counsel submitted copies of a complete set of transaction documents between Lane Bryant, Valentine, Metromax and Hon Fang. These documents include purchase orders, invoices and proof of payment tracking the initiation of the order by Lane Bryant to the completion of the transaction. The purchase orders and invoices track each other and the proof of payment comports with the amounts reflected on the invoices. Additionally, the 3 information on the visaed invoice, including price and quantity of merchandise matches that appearing in the sale between Hon Fang and Metromax. With regard to the first part of the Nissho test, counsel for the importer has stated no relationship exists between any of the parties to the transactions. Moreover, the documentation submitted by counsel suggests that there are two bona fide sales. We have therefore assumed for purposes of this ruling that all parties to this transaction are unrelated and deal with each other at arm's length. Thus, under the Nissho standard, the only issue to be resolved in determining if the manufacturer-middleman sale is statutorily viable for purposes of establishing transaction value is whether the merchandise is clearly destined for export to the U.S. To support the claim that the manufacturer's price constitutes a viable transaction value, counsel has submitted the purchase orders, invoices, bills of lading, packing lists, proof of payment and visaed invoices underlying the two sales. First, counsel notes that the garments feature brand name labels trademarked by the importer. They also bear the importer's RN number issued by the Federal Trade Commission (“FTC”). The garments are manufactured according to the importer's specifications and are accompanied by visaed invoices. The price and description of the merchandise on the visaed invoices match that on the purchase orders and sale between the factory and the middleman and match the description of the invoices from the middleman to the importer. And, the purchase orders and invoices provide that the shipping marks to be placed on the cartons indicate that the goods are at all times destined for the importer in the U.S. Customs has looked to factors such as these in order to determine whether merchandise is clearly destined for exportation to the U.S. e.g., HRL545474, dated August 25, 1995; HRL 545612, dated May 25, 1995; HRL 545709, dated May 12, 1995. In sum, it appears based on the documentation and information provided that the merchandise is clearly destined for exportation to the U.S. at the time the merchandise was sold from the factory to the middleman. Under these circumstances, the transaction between the middleman and the factory may form the basis for transaction value between the parties. For purposes of this decision we assume that in accordance with Treasury Decision 96-87, 30/3 1 Cust. Bu ll. 52/1 (1997), the importer will be able to provide Customs with sufficient information regarding the applicability of statutory additions, if any, to the price actually paid or payable. HOLDING: Based on the information presented, the merchandise imported by Lane Bryant may be appraised under transaction value on the basis of the transaction between the manufacturer and the middleman. With regard to future importations, the importer must be prepared to present Customs with copies of complete sets of transaction documents of the type described above, if so requested. Sincerely, Acting Director International Trade Compliance Division