OT:RR:CTF:VS H272113 CMR
Mr. Karl F. Krueger
DHL Global Forwarding
2660 20th Street
Port Huron, MI 48060
RE: Request for ruling on “First Sale” appraisement of merchandise
Dear Mr. Krueger:
This is in response to your letter of October 21, 2015, on behalf of your client, April Fine Paper Trading, Hong Kong (AFP Hong Kong), requesting a prospective ruling concerning the valuation of paper imported into the United States via a multi-tiered transaction in which AFP Hong Kong acts as a middleman.
FACTS:
You present two scenarios in which AFP Hong Kong acts as a middleman in transactions involving the sale of paper for export to the United States. In the first scenario, the unrelated U.S. consignee places an order with AFP Hong Kong. AFP Hong Kong then places an order with AFP Macau. AFP Macau then places an order with a related manufacturer in Indonesia. The manufacturer produces the goods and sells them to AFP Macau under FOB terms. You state:
AFP Macau finalizes the shipment to the US and charges AFP Hong Kong as a DAP shipment. AFP Hong Kong acts as seller and charges the US consignee under DAP terms and acts as the importer of record on the Customs documentation into the US.
For this scenario, you included the following pro forma documents that trace the shipment:
A purchase order from the unrelated U.S. ultimate consignee to AFP Hong Kong showing shipment to Long Beach.
A sales confirmation from AFP Hong Kong to the unrelated U.S. consignee indicating the loading port as Singapore and destination port as Long Beach with the Incoterm® DAT Long Beach. It also indicates insurance coverage to be undertaken by the seller (AFP Hong Kong).
A sales confirmation from AFP Macau to AFP Hong Kong indicating the loading port as Singapore and destination port as Long Beach with the Incoterm® CFR Long Beach. It also indicates insurance coverage to be undertaken by the buyer (AFP Hong Kong).
An invoice and packing list from AFP Macau to AFP Hong Kong reflecting the same terms as the sales confirmation.
An invoice and packing list from the related manufacturer to AFP Macau indicating the loading port as Buatan and the destination port as Long Beach with the Incoterm® FOB Buatan.
A delivery note from the related manufacturer for shipment to the unrelated U.S. consignee. The document identifies the unrelated U.S. consignee and its address; the customer as AFP Macau; and the final destination as Long Beach.
A bill of lading for the barge from Buatan to Singapore with the notice “Transhipment in Singapore to Oakland.” The document identifies Buatan as the port of lading and Singapore as the port of discharge.
A draft bill of lading from Singapore to Long Beach, CA, with the unrelated U.S. consignee identified as the party to notify.
An invoice from AFP Hong Kong to the unrelated U.S. consignee indicating the loading port as Singapore and destination port as Long Beach with the Incoterm® DAT Long Beach.
In the second scenario, you explain that the U.S. consignee places its order through an unrelated U.S. subsidiary of an Asian company. The U.S. subsidiary places the order with its related party in Japan which places the order with AFP Hong Kong which is not related to the Japanese company. AFP Hong Kong bills the Japanese company for a DDP shipment. As in the first scenario, the Indonesian manufacturer produces the goods and sells them to AFP Macau under FOB terms. AFP Macau sells the goods to AFP Hong Kong DAP in the U.S. You state: “. . . AFP Hong Kong remains the seller and US Importer or (sic) Record in this scenario. Each party in the chain takes actual ownership from the preceding party and pays for the goods.”
For this scenario, you included the following pro forma documents that trace the shipment:
A Japanese company purchase confirmation to AFP Hong Kong, Purchase Order 46947 showing goods to be shipped to the Japanese company’s U.S. subsidiary in California; however the destination is shown as Newark.
A sales confirmation from AFP Hong Kong to the Japanese company, Purchase Order 46947, showing the Japanese company as the buyer, the goods to be shipped to the Japanese company’s U.S. subsidiary’s customer in Florida, and the destination port to be Newark. The document also indicates insurance to be undertaken by the seller (AFP Hong Kong). The Incoterm® DAT Newark is used on the document.
An invoice and packing list from the related manufacturer to AFP Macau for the shipment showing FOB Buatan, loading port as Buatan, and destination port as Newark.
A delivery note from the related manufacturer showing the delivery address to be the Japanese company’s U.S. subsidiary’s customer in Florida. It shows the final destination as Newark, but also indicates the consignee is the party in Florida.
An invoice and packing list for AFP Macau to AFP Hong Kong indicating the loading port is Singapore; destination port is Newark; and the Incoterm® used is CFR Newark.
A bill of lading for the barge from Buatan to Singapore with the notice “Transshipment in Singapore to Newark.”
A draft bill of lading showing AFP Macau as the shipper and AFP Hong Kong as the consignee c/o (care of) the U.S. subsidiary of the Japanese company and the U.S. subsidiary is the party to notify. The Draft Bill of Lading detail shows Singapore as the port of lading and place of delivery as Newark.
You submitted a pro forma invoice and delivery notice for a sale by the related manufacturer to an unrelated Indonesian company of similar, although for somewhat lighter paper than the paper subject to the transactions for which you seek this prospective ruling. You believe that as the prices are by metric ton, the domestic sale gives a reasonable indication of a domestic price to an unrelated party.
In addition, you submitted additional documents in response to questions from this office. These documents appear to be for a different transaction involving the same parties in scenario 2. The documents you submitted for this third scenario are:
A purchase confirmation from the Japanese buyer (from scenario 2) which appears to be stamped “Revised.” This document indicates in the “Remarks” section: “As for OC No. 00183 Consignee on Bill of Lading: A P Fine Paper Trading (Hong Kong) Ltd.”
An invoice and packing list from the related party manufacturer to AFP Macau for the shipment showing FOB Buatan, loading port as Buatan, and destination port as Oakland.
A delivery note from the related manufacturer showing the delivery address to be the unrelated party from scenario 1 in Los Angeles. It shows the final destination as Oakland.
A sales confirmation from AFP Macau to AFP Hong Kong indicating “ship to” the U.S. subsidiary of the Japanese company in scenario 2. It indicates the loading port as Singapore, the destination port as Oakland, and the Incoterm® CFR Oakland. Further, it indicates insurance is to be undertaken by the buyer, i.e., AFP Hong Kong. It also references the OC Number which appears on the Revised Purchase Confirmation from the Japanese buyer.
An invoice and packing list from AFP Macau to AFP Hong Kong reflecting the same terms as the sales confirmation.
A Waybill indicating AFP Macau as the shipper, AFP Hong Kong as the consignee c/o (care of) the U.S. subsidiary of the Japanese company, and the U.S. subsidiary as the party to notify. It shows Singapore as the port of lading and Oakland as the place of delivery.
A sales confirmation from AFP Hong Kong to the Japanese buyer indicating the goods would be shipped to the Japanese buyer’s U.S. subsidiary and referencing the OC Number which appears on the Revised Purchase Confirmation from the Japanese buyer. The document indicates the loading port is Singapore; the destination port is Oakland; and the Incoterm® used is CFR Oakland. It indicates insurance is to be undertaken by the buyer, i.e., the Japanese company.
An invoice from AFP Hong Kong to the Japanese buyer indicating the loading port is Singapore; destination port is Oakland; and the Incoterm® used is CFR Oakland.
A packing list from AFP Hong Kong to the Japanese buyer indicating the loading port is Buatan; destination port is Oakland; and the Incoterm® used is CFR Oakland.
You believe the goods exported to the U.S. under the transactions you describe should be appraised at entry based on the price between the related Indonesian manufacturer and AFP Macau and that the presence of a lower price for similar paper when sold to an unrelated domestic company demonstrates that the sales to AFP Macau are at arm’s length.
ISSUE:
Whether the submitted documentation is sufficient to support the use of the price paid by AFP Macau to its related manufacturer in Indonesia, i.e., the First Sale price, for appraisement of the imported paper at the time of entry.
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).
You believe the goods exported to the U.S. under the transactions you describe should be appraised at entry based on the price between the related Indonesian manufacturer and AFP Macau based on Nissho Iwai American Corp. v United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F. 2d 505 (Fed. Cir. 1992). In that case, 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 as being a sale for exportation to the United States. The case involved a foreign manufacturer, a middleman, and a United States purchaser. The court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. The 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 non-market influences, and involving goods clearly destined for the United States. See also, Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18 (1993).
In accordance with the Nissho Iwai decision and our own precedent, we presume that transaction value is based on the price paid by the importer. In further keeping with the court’s holding, 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 is the importer’s responsibility to show that the “first sale” price is acceptable under the standard set forth in Nissho Iwai. 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, dated January 2, 1997, the Customs Service (now Customs and Border Protection (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 payments, contracts, and any additional documents (e.g. correspon- dence) 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.
It appears there is some confusion regarding the relevant Incoterms® for each transaction as what you state in your letter does not coincide with the terms reflected on the submitted documentation. This decision is based on the documents you have submitted. Incoterms® are used in international trade to delineate the rights and obligations of the parties in a sale, including the point at which the risk of loss transfers from the seller to the buyer. However, unless otherwise indicated by the parties, Incoterms® do not indicate when title to the goods passes from one party to another. In scenario 1, based on the Incoterms® used on the documents, AFP Macau assumes risk of loss when the goods are loaded on a barge at Buatan, Indonesia for delivery to Singapore (FOB); AFP Hong Kong assumes risk of loss once the goods are loaded for shipment at Singapore (CFR); and, the unrelated U.S. ultimate consignee assumes risk of loss when the goods are delivered to the terminal at the port of Long Beach (DAT). If we assume title transfers with the risk of loss, in scenario 1 it appears we have three sales.
In scenario 2, based on the Incoterms® used on the documents, AFP Macau assumes risk of loss when the goods are loaded on a barge at Buatan, Indonesia for delivery to Singapore (FOB); AFP Hong Kong assumes risk of loss once the goods are loaded for shipment at Singapore (CFR); and, the Japanese company purchasing the goods from AFP Hong Kong assumes risk of loss once the goods are delivered at the terminal at Newark. The difficulty in this scenario is that even if we assume title transfers with the risk of loss, we have no information regarding the sale between the U.S. subsidiary of the Japanese company and its related party in Japan.
Finally, in scenario 3, based on the Incoterms® used on the documents, AFP Macau assumes risk of loss when the goods are loaded on a barge at Buatan, Indonesia (FOB); AFP Hong Kong assumes risk of loss once the goods are loaded for shipment at Singapore (CFR); and, the Japanese company purchasing the goods from AFP Hong Kong assumes risk of loss once the goods are loaded for shipment at Singapore (CFR). In this scenario, AFP Hong Kong and its customer each assume the risk of loss when the goods are loaded for shipment at Singapore. This simply does not make sense. In addition, as in scenario 2, we have no information regarding the sale between the U.S. subsidiary of the Japanese company and its related party in Japan.
In this case, you have submitted certain pro forma documents. However, other than your statement that “Each party in the chain takes actual ownership from the preceding party and pays for the goods[,]” we have no contracts between the parties, evidence of payment or any other documentation to show that at each stage the parties are acting as buyers and sellers and not as an agent for another party.
As to the sale between the related manufacturer and AFP Macau, you believe “that the presence of a lower price for similar paper when sold to an unrelated domestic company demonstrates that the sales to AFP Macau are at arm’s length.” You have not submitted sufficient information to support that the sale between the related parties is an arm’s length sale. You provided an invoice and a delivery note for a sale by the related manufacturer to an unrelated party in Indonesia of somewhat lighter, though you state similar, paper. That is all you submitted and that is not sufficient to demonstrate that the related parties deal with another as if unrelated and that the sale between them is an arm’s length sale.
Under 19 U.S.C. § 1401a(b)(2)(B), sales between related parties may be acceptable under transaction value if an examination of the circumstances of the sale shows the relationship between the buyer and seller did not influence the price actually paid or payable or if the transaction value of the merchandise closely approximates the transaction value of identical merchandise or of similar merchandise in sales to unrelated buyers in the United States (or the deductive value or computed value for identical merchandise or similar merchandise) and such identical or similar merchandise was exported to the United States at or about the same time as the imported merchandise at issue.
In this case, one domestic sale of paper from the Indonesian manufacturer to an unrelated party in Indonesia was submitted for comparison purposes to show that the Indonesian manufacturer and AFP Macau deal with each other at arm’s length. However, the sale cannot be a “test value” as it is not to unrelated buyers in the United States, nor is there any information that the paper subject to that sale was destined ultimately to the U.S. See Headquarters Ruling Letter (HQ) H097035, dated November 15, 2011 and HQ H215658, dated June 11, 2012 which involved related manufacturers’ sales to related middlemen. Therefore, the sale between the related parties cannot be used for purposes of appraisement at the time of entry into the U.S. under the “first sale” method.
As you request a ruling on the use of the sale between the related manufacturer and AFP Macau, you may not have thought this office would need the information regarding the sale between the Japanese company and its U.S. subsidiary. However, for the reasons set forth herein, the sale between the related manufacturer and AFP Macau cannot be used for appraisement under the “first sale” method. As such, based on the information submitted, we are not able to determine whether the proper sale for appraisement purposes at the time of entry in scenario 2 or scenario 3 is the sale between AFP Hong Kong and the Japanese company or the sale between the Japanese company and its U.S. subsidiary.
HOLDING:
Based on the information provided, “first sale” is not the appropriate basis for appraisement for the submitted transactions.
A copy of this ruling letter should be attached to the entry documents at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch