RR:IT:VA 546206 KCC
Port Director
U.S. Customs Service
JFK Airport
Building #77
Jamaica, New York 11430
RE: Internal Advice 42/95; transaction value of wearing apparel;
Nissho Iwai American Corp; Synergy Sport International, Ltd;
HRLs 545144, HRL 545271, HRL 545360, and HRL 545648; J.L.
Wood; importer of record; bona fide arm's length sale; sale
for export to the United States; 19 U.S.C. 1401a(b); HRL
544775, HRL 543633, and HRL 545474
Dear Port Director:
This is in regard to your memorandum of August 14, 1995,
under cover of which you forwarded a request for internal advice
(IA 42/95), dated May 30, 1995, submitted by Siegel, Mandell &
Davidson, P.C. on behalf of Great Projects Limited ("GPL"). The
issue raised is whether the appraised value of the imported
wearing apparel should be based on the manufacturer's sale price
to the middleman/importer or the sale price between the
middleman/importer and the U.S. distributor. Audit Report No.
227-92-CEO-013 dated June 6, 1985, and a memorandum from Chief,
Wearing Apparel Branch, National Commodity Specialist Division,
New York Seaport, dated November 30, 1995, were taken into
consideration in rendering this decision.
FACTS:
Great Projects Limited ("GPL") is a Hong Kong firm that has
been in business since 1981. Beginning in 1991, GPL began
operating as a supplier and non-resident importer in accordance
with 141.18, Customs Regulations (19 CFR 141.18). GPL imported
womens wearing apparel into the United States which it acquired
from Shanghai Silk Import and Export Corporation ("Shanghai
Silk"), an unrelated Chinese manufacturer. GPL supplied the
wearing apparel to Nouvelle Sportive Inc. ("Nouvelle"), its
related U.S. distributor. Nouvelle owns 50% of GPL. The
imported wearing apparel is sold by Nouvelle to clothing stores
throughout the United States. Since October 1993, GPL has ceased
importing and doing business.
GPL and Nouvelle entered into an exclusive Distributorship
Agreement on June 1, 1991, wherein GPL is the manufacturer
"engaged in the manufacture and sale of women's apparel" and
Nouvelle is the distributor "engaged in the purchase,
distribution and resale of women's apparel in the United States,
and desire to purchase the Manufacturer's Products for
distribution in connection with its business." 8 of the
Distributorship Agreement states that "[a]n order placed by the
distributor constitutes an offer which Manufacturer may accept or
reject. Upon acceptance by Manufacturer, a contract shall be
formed which is binding upon the parties. 3 of the
Distributorship Agreement states that "[d]elivery shall take
place when the Merchandise receives United States Customs
clearance at which time risk shall pass to the Distributor."
Moreover, the Distributorship Agreement directs the "Distributor
to pay any and all applicable customs duties, broker fees and
freight, as a credit against the price specified in Paragraph 14"
and to keep the customs records required under 162.1(b), Customs
Regulations (19 CFR 162.1(b)). See, 11 and 12 of the
Distributorship Agreement. 14 states that the price for the
wearing apparel will include transportation and insurance to the
agreed upon port of entry, export and import licenses, applicable
duties and taxes (excluding value added tax), and brokerage fees.
Audit Report No. 227-92-CEO-013 found that, until the middle
of 1991, Nouvelle was the importer of record. Invoices submitted
by Nouvelle, as importer, indicated either GPL as the buyer, the
"Exclusive Sales Agent for Shanghai Silk Corporation", or the
seller. At the same time Nouvelle ceased being an importer of
record, GPL became the importer of record. The audit found that
GPL does not maintain a physical presence in the United States.
GPL utilizes a post office box in New York where Nouvelle
retrieves GPL's mail. Additionally, Nouvelle makes payments for
Customs duties, broker related services, and international
freight on behalf of GPL. The audit report determined that GPL
and Nouvelle are functioning in the same manner subsequent to GPL
becoming the importer of record as when Nouvelle was the importer
of record. The audit report further noted that the commercial
invoices from GPL to Nouvelle and from Nouvelle to its customers
had the same invoice numbers, invoice dates and quantities.
Additionally, the report indicated that risk of loss or damage
passed to Nouvelle when the wearing apparel was cleared from U.S.
Customs. The audit report determined that GPL merely acts as a
supplier that subcontracts to Shanghai Silk. Based on findings
in the audit report, it is your position that only one bona fide
sale for export to the United States exists, the sale between
GPL, the middleman/importer, and Nouvelle, the distributor.
Therefore, you state that the invoices from GPL to Nouvelle
represent the price actually paid or payable for the wearing
apparel when sold for export to the United States plus enumerated
deductions when determining transaction value. Additionally, you
state that the sale between GPL and the Shanghai Silk is not a
sale for exportation, but rather a domestic sale, entered into in
order to allow GPL to fulfill its contract for export to the
United States with Nouvelle.
Counsel for GPL contends that the sale between GPL and
Shanghai Silk is the bona fide sale for export that should be
used in determining transaction value. Counsel states that
Shanghai Silk and GPL deal with each other at arm's length and
that the goods are clearly destined for export to the United
States. Counsel states that the wearing apparel imported by GPL
was purchased for export to the United States from Shanghai Silk,
an unrelated manufacturer. All of the wearing apparel was
designed, ordered, produced, and labeled explicitly for the U.S.
market. The wearing apparel is labeled in accord with relevant
U.S. Federal Trade Commission requirements pertaining to content
and care instructions, as well as with both U.S. size
designations and the private labels of the U.S. retailers.
Additionally, Counsel notes that the apparel was accompanied by
properly visaed textile export licenses issued by the appropriate
authorities in the People's Republic of China.
Counsel states that although the Distributorship Agreement
referred to GPL as a "manufacturer", it is clear that GPL owned
no manufacturing or production facilities, a fact which Counsel
contends has been verified by Customs auditor's review of GPL's
books and records. Counsel states that GPL is what is referred
to in the trade as a "contract manufacturer", a party that
arranges for the production of wearing apparel in China upon
receipt of an order from Nouvelle. Counsel states that GPL
functioned as a middleman purchaser and importer, who purchased
finished wearing apparel directly from Shanghai Silk for export
to the U.S. and then resold to its own customer in the U.S.,
Nouvelle. Although some of the stationery used by GPL
characterized it as the "exclusive sales agent for Shanghai
Silk", Counsel states that this was simply inaccurate. No agency
relationship existed between GPL and Shanghai Silk. Counsel
states that this is fully supported by the books and records
reviewed by Customs, all of which unequivocally confirmed the
sale and transfer of title to the wearing apparel from Shanghai
Silk to GPL and that there was no receipt of any commissions by
GPL from Shanghai Silk. Moreover, Counsel states that GPL's lack
of physical presence in the U.S. is of no concern. GPL was
operating within the prescribed regulatory framework as a non-resident importer of record. Counsel states that the fact that
Nouvelle performed mail collection, duty payment services, and
other ministerial and/or clerical services in the U.S. does not
invalidate GPL's status as a purchaser and importer of goods into
the U.S.
We have reviewed various documents which illustrate the type
of transactions that occurred between GPL, Nouvelle and Shanghai
Silk. The following documents demonstrate a typical transaction
between the parties:
1. Cutting tickets issued by GPL to Shanghai Silk for 7,200
pieces of style CC952A and 4,842 pieces of style CC952B
dated November 12, 1991. Further details on the cutting
tickets indicate that the wearing apparel is for Casual
Corner, it is to be delayed until December, 15, 1992, with
shipment "EX-SHAI by SEA", and requests reserving quota for
U. S. category 641.
2. Sales Confirmation No. 91RGS1253 from Shanghai Silk to GPL
dated November 19, 1991, for 7,200 pieces of style CC952A
and 4,842 pieces of style CC952B, both for the FOB amount of
$x.xx per piece. The sales confirmation is signed by
individuals from both GPL and Shanghai Silk and indicates
the terms of sale are FOB Shanghai, December 1992 with
shipment from Shanghai to New York by air.
3. Shanghai Silk Invoice No. E113987 for Sale No. 91RGS1253
dated December 13, 1991 to GPL for 7,200 pieces of style
CC952A and 3,624 pieces of style CC952B, both for the amount
of $x.xx per piece. The terms of sale are indicated as FOB
Shanghai with shipment via truck and sea to Hong Kong/New
York. Additionally, the invoice indicates that the marks
and numbers are "GPL NEW YORK E113987/«T7."
4. GPL Invoice No. 0000787 to Nouvelle dated January 10, 1992,
for 7,200 pieces of CC952 for $yy.yy per piece, and GPL
Invoice No. 0000788 to Nouvelle dated January 8, 1992, for
3,624 pieces of CC952 for $yy.yy per piece.
5. Nouvelle Invoice No. 0000787 to Casual Corner dated January
10, 1992, for 7,200 pieces of CC952 for $zz.zz per piece,
and Nouvelle Invoice No. 0000788 to Casual Corner dated
January 10, 1992, for 3,624 pieces of CC952 for $zz.zz per
piece.
6. Quota charge Statement from Shanghai Silk covering Invoice
No. E113987 a charge for Quota U.S. Category No. 641 was
paid by GPL to China National Silk Imp. & Exp. Corp. and is
not included in the invoice price.
7. The Hongkong and Shanghai Banking Corporation Limited
statement showing a deduction from GPL account to cover the
total amount of Shanghai Silk Invoice No. E113987 to GPL.
ISSUE:
Whether the transaction between Shanghai Silk and GPL or the
transaction between GPL and Nouvelle determines the "price
actually paid or payable" for wearing apparel when sold for
exportation.
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into
the United States is transaction value pursuant to 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. 402(b)(1) of the
TAA provides, in pertinent part, that 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 numerated additions. The terms "price actually paid or
payable" is defined in 402(b)(4)(A) of the TAA as:
...the 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...) made, or to be made, for the imported
merchandise by the buyer to, or for the benefit of, the
seller.
Counsel for GPL contends that this transaction involves a
three-tiered situation involving a U.S. purchaser/distributor
(Nouvelle), importer/middleman (GPL), and primary-level seller
(Shanghai Silk). Thus, Counsel reasons that two sales took
place, one between Shanghai Silk and GPL and the other between
GPL and Nouvelle. Counsel for GPL contends that the sale between
GPL and Shanghai Silk is the bona fide sale for export that
should be used in determining transaction value. Counsel states
that Shanghai Silk and GPL deal with each other at arm's length
and that the goods are clearly destined for export to the United
States. Counsel states that the wearing apparel imported by GPL
was purchased for export to the United States from Shanghai Silk
as it was designed, ordered, produced, and labeled explicitly for
the U.S. market. Counsel contends that this situation is similar
to the factual situations in Nissho Iwai American Corp. v. United
States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982
F.2d 505 (1992), and Synergy Sport International, Ltd. v. United
States, Slip Op. 93-5 (CIT Jan 12, 1993).
In Nissho Iwai and Synergy, the U.S. Court of Appeals for
the Federal Circuit and the Court of International Trade,
respectively, addressed the proper transaction value of
merchandise imported pursuant to a three-tiered distribution
arrangement involving a foreign manufacturer, a middleman and a
United States purchaser. In both cases, the middleman was the
importer of record. 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 negotiated at arm's length, free from any
nonmarket influences, and involving goods clearly destined for
the United States.
We note that in the context of filing an entry, Customs Form
(CF) 7501, an importer is required to make a value declaration.
As indicted by the language of CF 7501 and the language of the
valuation statute, there is a presumption that transaction value
is based on the price paid by the importer. In accordance with
the Nissho Iwai and Synergy decisions and our own precedent, we
presume that transaction value is based on the price paid by the
importer. See, Headquarters Ruling Letter (HRL) 545144 dated
January 19, 1994, HRL 545271 dated March 4, 1994, HRL 545360
dated May 31, 1994, and HRL 545648 (IA 10/94) dated August 31,
1994. In further keeping with the courts' holdings, we note that
in those situations where an importer requests appraisement based
on the price paid by the middleman to the foreign manufacturer
(and the importer is not the middleman), the importer may do so.
However, it will be the importer's responsibility to show that
such 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(b).
In this situation, the importer is the middleman and, thus,
transaction value is presumed to be based on the price paid by
the importer, GPL. Counsel states that GPL was acting within
Customs Regulations as a nonresident importer pursuant to 19 CFR
141.18. Thus, it is of no concern that GPL did not have a
physical presence in the U.S., nor does the fact that Nouvelle
performed mail collection, payment services, document retention
and other ministerial services invalidate GPL as the importer.
We agree. If GPL is acting within Customs Regulations and
fulfilling its obligation as an importer or record with or
without the assistance of another party, it is of no concern that
GPL does not have a physical presence in the U.S.
From the evidence presented, it appears that a bona fide
sale for export to the United States occurred between Shanghai
Silk and GPL. For Customs purposes, the word "sale" generally is
defined as a transfer of ownership in property from one party to
another for a consideration. J.L. Wood v. United States, 62 CCPA
25, 33; C.A.D. 1139 (1974). While J.L. Wood was decided under
the prior appraisement statute, Customs adheres to this
definition under the TAA. The primary factors to consider in
determining whether there has been a transfer of property or
ownership are whether the alleged buyer has assumed the risk of
loss, and whether the buyer has acquired title to the imported
merchandise. See, HRL 544775 dated April 3, 1992; HRL 543633
dated July 7, 1987. Also relevant is whether, in general, the
roles of the parties and circumstance of the transaction indicate
that the parties are functioning as buyer and seller. See, HRL
545474 dated August 25, 1995.
We find that the submitted evidence establishes a bona fide
sale between Shanghai Silk and GPL. Commercial documents
relating to the sale, such as, GPL's cutting tickets to Shanghai
Silk, Shanghai Silk's sales confirmation to GPL, Shanghai Silk's
invoices to GPL, and evidence of payment by GPL were examined by
Customs. The evidence available indicates that there was a
transfer of property or ownership from Shanghai Silk to GPL and
that GPL assumed the risk of loss for the subject merchandise
until it reached the U.S. Shanghai Silk's sales confirmations
and invoices indicate that the terms of sale were FOB Shanghai.
Additionally, as you have noted, 3 of the Distributorship
Agreement states that risk of loss was transferred to Nouvelle
when the wearing apparel was cleared from U.S. Customs. Thus,
GPL takes ownership and risk of loss for the wearing apparel in
Shanghai until Nouvelle takes possession of the subject
merchandise after it clears U.S. Customs. Furthermore, Counsel
states that Shanghai Silk and GPL are not related. We do note
that Nouvelle invoices prior to 1991, when Nouvelle acted as
importer, indicated that GPL acted as either a seller, or
"Exclusive Sales Agent for Shanghai Silk Corporation." However,
no other evidence is available to ascertain that an agency
relationship existed between Shanghai Silk and GPL, other than
prior Nouvelle invoices. As previously discussed, all the
documentation indicates that Shanghai Silk and GPL functioned as
buyer and seller due to the sale and transfer of ownership in
Shanghai between Shanghai Silk and GPL. Thus, we find sufficient
evidence to establish a bona fide "arm's length" sale between
Shanghai Silk and GPL.
Additionally, we find that the Shanghai Silk/GPL sale was a
"sale for export to the U.S." All of the wearing apparel was
designed, ordered, produced, and labeled explicitly for the U.S.
market. This is first evidenced by the GPL cutting tickets which
indicate the eventual U.S. buyer, i.e. Casual Corner, and the
request to reserve U.S. quota for a particular category. Counsel
states that the wearing apparel is labeled in accord with
relevant U.S. Federal Trade Commission requirements pertaining to
content and care instructions, as well as with both U.S. size
designations and the private labels of the U.S. retailers.
Additionally, Counsel notes that the apparel was accompanied by
properly visaed textile export licenses issued by the appropriate
authorities in the People's Republic of China. Furthermore,
Shanghai Silk's sales confirmation and invoices to GPL indicated
that the subject merchandise is to be shipped from Shanghai to
New York.
The evidence available indicates that the sale between
Shanghai Silk and GPL, as importer and middleman, is a bona fide
"arm's length sale" for export to the United States. Therefore,
the price between Shanghai Silk and GPL constitutes the price
actually paid or payable for purposes of determining transaction
value of the imported wearing apparel.
HOLDING:
Based on the evidence presented, the price between Shanghai
Silk and GPL constitutes the price actually paid or payable for
purposes of determining the transaction value of the imported
wearing apparel.
This decision should be mailed by your office to the
internal advice requester no later than 60 days from the date of
this letter. On that date the Office of Regulations and Rulings
will take steps to make the decision available to Customs
personnel via the Customs Rulings Module in ACS and the public
via the Diskette Subscription Service, Freedom of Informational
Act and other public access channels.
Sincerely,
Acting Director
International Trade Compliance
Division