HQ H067846
OT:RR:CTF:VS H067846 YAG
Port Director
U.S. Customs and Border Protection
Port of Champlain, NY
237 West Service Road Champlain, NY 12919
RE: Application for Further Review of Protest 0712-09-100165; Valuation of Men’s Woven Shirts; Sale for Exportation to the United States; “Clearly Destined” for the United States
Dear Port Director:
This is in response to your correspondence, dated June 30, 2009, forwarding the Application for Further Review (“AFR”) of Protest 0712-09-100165, timely filed by counsel on behalf of Patpina Moda, Inc.
FACTS:
Patpina Moda, Inc. is a non-resident importer of men’s dress shirts into the United States for sale to unrelated customers. The company is situated in Montreal, Canada. Patpina Moda, Inc. purchases the merchandise from Gentry 1978, Inc. (“Gentry”), a related company also located in Montreal, Canada. Gentry, in turn, purchases the men’s shirts from Classic SRL, a company located in Italy.
Patpina Moda, Inc. claims that the merchandise should be appraised and valued as entered based upon the sale between Gentry and Patpina Moda, Inc. Further, Patpina Moda, Inc. claims that any sales between Patpina Moda, Inc. and its customers in the United States would be domestic sales within the United States subsequent to the entry of the imported merchandise into the commerce of the United States. To substantiate its claim, Patpina Moda, Inc. provided copies of two (2) invoices from Classic SRL to Gentry, which include the merchandise contained in the entry subject to this protest. Patpina Moda, Inc. states that more merchandise was purchased by Gentry than was sold to Patpina Moda, Inc. in this particular shipment. According to Patpina Moda, Inc., Gentry purchases goods not only for sale to Patpina Moda, Inc. for export to the United States, but also for domestic sales within Canada. Patpina Moda, Inc. also included packing lists, proof of payment, and the Canadian Customs entry for these goods under the applicable invoices for our review. Moreover, Patpina Moda, Inc. included for our review multiple invoices and proof of payment between Gentry and Patpina Moda, Inc. All invoices between Gentry and Patpina Moda, Inc. state that all goods are sold for export to the United States. They also specify the term of sale “Delivered Duty Unpaid, Champlain, New York.” Finally, upon request for additional information, Patpina Moda, Inc. provided us with the purchase orders and invoices between Patpina Moda, Inc. and its customers in the United States.
The Port, on the other hand, believes that the sale for export to the United States is the sale between Patpina Moda, Inc. and its customers in the United States. The Port contends that when Gentry purchased the shirts from Classic SRL in Italy, there was no buyer or sale for exportation into the United States at that time. Additionally, the Port claims that no purchase orders have been provided to indicate that there were any orders predating the related party sale that mandated the exportation of the goods into the United States. In other words, according to the Port, Patpina Moda, Inc. was under no obligation to export the goods to the United States at the time of their purchase from Gentry and that at the time of the sale between Gentry and Patpina Moda, Inc., there were no clients in the United States waiting for this merchandise. Thus, the Port states that without this obligation to export the goods to the United States, there is no valid sale for export to the United States. The Port claims that this argument is supported by numerous U.S. Customs and Border Protection (“CBP”) rulings which state that goods must be “irrevocably destined for export to the United States.”
ISSUE:
Whether the imported merchandise may be appraised on the basis of the transaction between Gentry and Patpina Moda, Inc. 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. Section 402(b)(l) 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 amounts for the enumerated statutory additions. 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 courts have had the opportunity to address the issue of the use of the transaction value method in multi-tiered transactions (involving foreign middlemen and foreign manufactures). In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992), the Court of Appeals for the Federal Circuit addressed the method for determining the use of transaction value in a three-tiered distribution system involving a foreign middleman. The Court indicated that a manufacturer’s price for establishing transaction value is valid so long as the transaction between the foreign manufacturer and the foreign middleman falls within the statutory provision for valuation. In this regard, 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 when the manufacturer and the middleman deal with each other at arm’s length, in the absence of any non-market influences that affect the legitimacy of the sale price. Id. at 509. See also Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18 (1993). In response to the decision in Nissho Iwai American Corp. v. United States, CBP issued its official position on the application of that decision in the form of a Treasury Decision (“T.D.”). In T.D. 96-87, Determining Transaction Value in Multi-Tiered Transactions, Vol. 30/31, Customs Bulletin No. 52/1, (January 2, 1997), CBP clarified some of the issues that arise in multi-tiered transactions in determining which sale is the sale for exportation to the United States for the purposes of determining transaction value. T.D. 96-87 states, in part, that:
[I]n fixing the appraisement of imported merchandise, Customs presumes that the price paid by the importer is the basis of transaction value and the burden is on the importer to rebut this presumption. In order to rebut this presumption, in accordance with the Nissho Iwai standard, the importer must prove that at the time the middleman purchased, or contracted to purchase, the goods were “clearly destined for export to the United States” and the manufacturer (or other seller) and middleman dealt with each other at “arm's length.” In reaching a decision, Customs must ascertain whether the transaction in question falls within the statutory provision for valuation, i.e., that it is a sale, that it is a sale for exportation to the United States in accordance with the standard set forth above, and that the parties dealt with each other at “arm's length.” As stated in Nissho Iwai, these questions are determined case-by-case on the evidence presented.
T.D. 96-87 also identifies the documentation and information required to support a determination that transaction value should be based on a sale involving a middleman and the manufacturer or other seller rather than on the sale to which the importer is a party. First, a complete paper trail of the imported merchandise showing the structure of the entire transaction must be provided. Second, if the parties to the requested transaction are related, the importer must provide CBP with information that demonstrates that transaction value may be based on the related party sale as provided in 19 U.S.C. §1401a(b)(2)(B) (i.e., that the circumstances of sale indicate that the relationship did not influence the price or that the transaction value closely approximates certain test values). Finally, sufficient information must be provided with regard to the statutory additions set forth in 19 U.S.C. §1401a(b)(1) (i.e., packing costs, selling commissions, assists, royalty or license fees, and proceeds of any subsequent sale), for the alleged sale between the manufacturer and the middleman. With respect to the documentation required for the importer to rebut the presumption that the price paid by the importer is the basis of transaction value, T.D. 96-87 states as follows:
In order for an importer to rebut the presumption “[that the price paid by the importer is the basis of transaction value]”, certain information and documentation must be provided. Specifically, the requestor must describe in detail the roles of all the various parties and furnish relevant documents pertaining to each transaction that was involved in the exportation of the merchandise to the United States. If there is more than one possible sale for exportation, information and documentation about each of them should be provided. Relevant documents include, purchase orders, invoices, proof of payment, contracts and any additional documents (e.g. correspondence), which demonstrate how the parties dealt with one another and which support the claim that the merchandise was clearly destined to the United States. If any of these documents do not exist, or exist but are not available, the ruling request should so provide. What we are looking for is a complete paper trail of the imported merchandise showing the structure of the entire transaction.
In summary, the public should be aware that CBP presumes that transaction value is based on the price paid by the importer and in order to rebut this presumption and prove that transaction value should be based on some other price, complete details of all the relevant transactions and documentation (including purchase orders, invoices, evidence of payment, contracts and other relevant documents) must be provided, including the relationship of the parties and sufficient information regarding the statutory additions.
In this case, Patpina Moda, Inc. is a non-resident importer. Since Patpina Moda, Inc. is a non-resident importer and the terms of sale of the merchandise is “Delivered Duty Unpaid, Champlain, New York,” we disagree with the protestant that the sales between Patpina Moda, Inc. and its U.S. customers are domestic sales. Therefore, we find that Patpina Moda, Inc. is a middleman in this transaction. Accordingly, this is a first sale issue, and the Nissho Iwai standard is clearly applicable in this case.
Patpina Moda, Inc. claims that transaction value should be based on the price paid by Patpina Moda, Inc. to Gentry, its related party in Canada.
Bona Fide Sale
First, we must determine if indeed a “sale” has occurred. 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, (citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). No single factor is decisive in determining whether a bona fide sale has occurred. See Headquarters Ruling Letter (“HRL”) 548239, dated June 5, 2003. CBP will consider such factors as to whether the purported buyer assumed the risk of loss for, and acquired title to, the imported merchandise. Evidence to establish that consideration has passed includes payment by check, bank transfer, or payment by any other commercially acceptable means. Payment must be made for the imported merchandise at issue; a general transfer of money from one corporate entity to another, which cannot be linked to a specific import transaction, does not demonstrate passage of consideration. See HRL 545705, dated January 27, 1995.
In addition, CBP may examine whether the purported buyer paid for the goods, and whether, in general, the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as buyer and seller. See HRL H005222, dated June 13, 2007.
Finally, pursuant to the CBP’s Informed Compliance Publication, entitled “Bona Fide Sales and Sales for Exportation,” CBP will consider whether the buyer provided or could provide instructions to the seller, was free to sell the transferred item at any price he or she desired, selected or could select its own downstream customers without consulting with the seller, and could order the imported merchandise and have it delivered for its own inventory.
Based on the submitted information, including the Gentry’s invoices which indicate that the merchandise has been sold to Patpina Moda, Inc. and the proofs of payment by Patpina Moda, Inc. to Gentry for the merchandise, we are satisfied that the sales between Gentry and Patpina Moda, Inc. were bona fide sales.
Clearly Destined for Export to the United States
The next issue that must be considered in this case is whether the evidence presented demonstrates that the merchandise is clearly destined for export the United States. As noted in HRL 547382, dated February 14, 2002, our prior rulings indicate that CBP hesitates to find a sale for export where merchandise is not shipped directly to the United States. See also HRL 542318, dated May 22, 1981 (drill bits manufactured in Italy and stored in France for an indefinite period are not sold for exportation to the United States because when sold they could end up either with a U.S. or European customer); and HRL 542962, dated December 29, 1982 (no sale for exportation when a motorcycle was purchased in Japan for the purpose of being used for an extended period overseas before being imported into the United States). Thus, as further indicated in HRL 547382, the presumption is that merchandise shipped to a foreign party and location is not sold for export to the United States. In order to rebut this presumption, the importer must present sufficient evidence to show that the merchandise is clearly destined for export to the United States at the time of sale to the middleman. Id.
In HRL 547825, dated July 16, 2001, CBP considered a case where a company operated a chain of retail outlets in the United States. The company forwarded merchandise forecast orders each season to a related company in Canada that, in turn, placed a single consolidated purchase order with a buying agent or directly to foreign suppliers. The shipments from the foreign suppliers, which contained merchandise intended both for the Canadian and U.S. markets, were consigned to a central warehouse in Canada for storage and deconsolidation and were entered into Canada under a duty deferral program. Under the terms of the duty deferral program, duty was imposed only when merchandise was subsequently sold in Canada. In considering whether the merchandise was clearly destined for export to the United States when sold to the middleman, CBP noted that there was nothing in the commercial documents pertaining to the sale from the manufacturer that referenced the U.S. destination of the commingled merchandise. Moreover, there was nothing unique about the purportedly U.S.-destined merchandise that would prevent diversion into the Canadian market. Therefore, CBP held that the goods were not clearly destined for export to the United States when sold to the middleman because no evidence was offered to refute the possibility that a contingency of diversion existed.
However, in HRL 563420, dated April 14, 2006, ABC Canada, a non-resident importer, imported sweaters and t-shirts into Canada from an unrelated foreign manufacturer for storage prior to shipping the sweaters and t-shirts to retail customers in the United States. The retail customers in the United States were unrelated to ABC Canada. In this case, the various U.S. retailers provided ABC Canada with confirmed purchase orders as well as with “forecast” orders for additional amounts of merchandise that may be required. Based upon these confirmed and forecast orders, ABC Canada issued a “tentative” purchase request for the foreign manufacturer. Prior to actual shipment of the merchandise by the foreign manufacturer, ABC Canada confirmed orders from the U.S. retailers and confirmed its own purchase orders from the foreign manufacturer. The purchase order confirmation constituted the contract of sale between ABC Canada and the foreign manufacturer, and stated that the goods were irrevocably destined to the United States. The merchandise entered Canada under a “duty relief license” or into a bonded warehouse. The merchandise was shipped to the United States retailers on an as needed basis or according to an agreed upon schedule. In the event that a U.S. retailer cancelled an order, the merchandise was stored in the Canadian duty-deferral warehouse until another U.S. buyer was identified and new sale completed. The Importer submitted various documents such as bills of lading, packing lists, purchase orders, pro forma invoices, shipping and distribution manifests, and invoices for CBP review. CBP ruled that the specific facts set forth in the case and paper trail established by the commercial documentation provided, indicated that there would be no contingency of diversion in that case.
In this case, you submitted various commercial documents in order to show how the transactions are structured. Such documents include two (2) invoices from Classic SRL to Gentry, which include the merchandise contained in the entry subject to this protest, packing lists, proof of payment, and the Canadian Customs entry for these goods under the applicable invoices, multiple invoices and proof of payment between Gentry and Patpina Moda, Inc.
Patpina Moda, Inc. states that more merchandise was purchased by Gentry than was sold to Patpina Moda, Inc. in this particular shipment. Patpina Moda, Inc. admits that Gentry purchases goods from Classic SRL not only for sale to Patpina Moda, Inc. for export to the United States, but also for domestic sales within Canada. However, Patpina Moda, Inc. does not claim that the sale from Classic SRL to Gentry was the sale for exportation to the United States. Patipina Moda, Inc. claims that the sale from Gentry to Patpina Moda, Inc. is the sale for exportation into the United States. Thus, we must consider whether the sale between Gentry and Patpina Moda, Inc. is the sale for exportation into the United States. With respect to this sale, we note that the purchase orders between Gentry and Patpina Moda, Inc. correspond to the purchase orders and invoices between Patpina Moda, Inc. and its U.S. customers with regard to the order number, article (men’s shirts), and quantity ordered. We also note that the invoices between Gentry and Patpina Moda, Inc. specify the “DDU, Champlain, New York” term of sale and indicate that the goods were sold for entry to the United States. Therefore, the specific facts set forth above and the paper trail established by the commercial documentation provided, indicate that there will be no contingency of diversion in this case. Therefore, we find that sufficient information has been provided to show that the subject merchandise will be clearly destined for export to the United States at the time Patpina Moda, Inc. purchases the merchandise from Gentry.
Arm’s Length
Under Nissho, the sale between Gentry and Patpina Moda, Inc. must have been conducted at arm’s length in order to serve as the basis for transaction value. In this case, we note that Gentry and Patpina Moda, Inc. are related parties. Therefore, Patpina Moda, Inc. must show that the relationship between the parties did not influence the price. In its response to our request for additional information, dated December 16, 2009, Patpina Moda, Inc. stated that the sale was conducted at arm’s length because the price at which Gentry sells the merchandise to Patpina Moda, Inc. for export to the United States is the same price at which Gentry sell the merchandise to unrelated customers in Canada, adjusted to take into account sales commissions, marketing and similar expenses, such as cost of sales, incurred in Canada by Gentry, due primarily to the difference in the level of sale between the two transactions. However, apart from
this assertion, no supporting documentation has been provided to us to indicate that the sale was conducted at arm’s length and that the value of the merchandise was not influenced by the relationship of the parties. Therefore, due to the lack of evidence to show that the price between Gentry and Patpina Moda, Inc. was not influenced by the relationship of the parties, we find that Patpina Moda, Inc. cannot use the sale between Gentry and Patpina Moda, Inc. as the sale for export. Accordingly, the merchandise should be appraised based on the prices between Patpina Moda, Inc. and the U.S. customers.
HOLDING:
The Protest is DENIED.
In accordance with the Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), 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 mailing of the decision. Sixty days from the date of the decision Regulations and Rulings of the Office of International Trade will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web 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