CLA-2 OT:RR:CTF:VS H105276 HkP
Port Director
Port of Columbus
U.S. Customs and Border Protection
6431 Alum Creek Drive
Groveport, OH 43125
RE: Application for Further Review of Protest No. 4103-09-100140; Method of Appraisement; Wearing Apparel; Third Party Documents
Dear Port Director:
This is in response to an Application for Further Review of Protest no. 4103-09-100140, timely filed by counsel on behalf of Kinratex International, Inc. (Protestant), on September 10, 2009, and amended on October 6, 2009. The protest concerns the proper method of appraisement pursuant to 19 U.S.C. § 1401a for certain wearing apparel. In reaching our decision, we have taken into consideration additional information submitted by counsel to this office on December 9, 2010, March 22, 2012 (via teleconference), and on April 3, 2012.
FACTS:
Ralsey Group Ltd. (Ralsey) is a U.S. corporation that imports wearing apparel from China. After receiving orders from domestic customers, Ralsey instructed its related agent, Li & Fung, to place purchase orders for the merchandise with two Hong Kong sellers, Willing Knitwear Factory Ltd. and KMJ Limited. The terms of sale for both contracts were Delivered Duty Paid (DDP), Columbus. Willing Knitwear and KMJ, in turn, both placed orders for the merchandise with the same Chinese manufacturer, Dongguan Willing Knitwear Factory Ltd. Under both contracts, the merchandise was shipped from Hong Kong to the United States and entered by the importer, Kinratex, characterized by counsel as being the “alter ego” of Willing Knitwear and of KMJ, appointed to act as importer of record on behalf of each Hong Kong seller. Freight Management Company (FMC) acted as an agent for both Hong Kong sellers and was responsible for paying for cargo insurance, provisional import charges and duties for both contracts. In addition, FMC was authorized to receive payment from the buying agent, Li & Fung, on behalf of KMJ. According to counsel, FMC and Kinratex are not related.
Four hundred and ten dozen sweaters, style 115649, were entered on September 29, 2008, and valued based on the transaction between Willing Knitwear and Dongguang Willing Knitwear Factory, that is, at the first sale price. On June 5, 2009, the importer was advised by U.S. Customs and Border Protection (CBP) that the entered merchandise had been reappraised using the transaction value of similar merchandise. On May 5, 2009, 1,104 dozen sweaters, styles 21257 and 121258, were entered and valued based on the transaction between KMJ and Dongguang Willing Knitwear Factory. On June 17, 2009, the importer was advised by CBP that the entered merchandise had been reappraised using the transaction value of similar merchandise. On September 10, 2009, the importer protested CBP’s actions.
Counsel has informed CBP that the manufacturer is no longer in business and, as a result, the sellers in Hong Kong are unable to produce sufficient documentary evidence to confirm that the prices they paid for the merchandise covered by the two entries at issue represent acceptable first sale transaction values. Consequently, counsel requests that the transaction values for both entries be appraised at DDP prices, less post-export charges. The amendment to the protest, dated October 6, 2009, sets out the calculations that counsel believes reflect the correct appraised value of the merchandise.
For sweater style 115649 (the Willing Knitwear transaction), entered on September 29, 2008, the documents included in the record show that Li & Fung, as the buying agent for Ralsey Group Ltd., placed an order on July 19, 2008, with Willing Knitwear for 4,968 style 115649 ladies’ knitted pullover at US $5.78 each, LDP Columbus. On September 23, 2008, Willing Knitwear issued invoice WI-060/08 to Li & Fung for 4,923 style 115649 ladies’ knitted pullovers at US $5.78 each, DDP Columbus. Payee advice, dated October 30, 2008, issued by Standard Chartered Bank (HK) Ltd. to Willing Knitwear indicates, among other things, that a payment in the amount of US $28,426.49 was made by Li & Fung for invoice WI-060/08. Other documents included in the record are an Air Waybill, freight and flight invoices, U.S. Customs entry documents and an undated letter, issued by Willing Knitwear, appointing Kinratex importer of record for entry of invoice WI-060/08.
For sweater styles 121257 and 121258 (the KMJ transaction), entered on May 5, 2009, the documents included in the record show that on March 7, 2009, Li & Fung, as the buying agent for the Ralsey Group, placed an order with KMJ Limited (Hong Kong) for 13,530 sweaters, styles 121257 (8,030 at US $6.20 each) and 121258 (5,500 at US $6.30 each) ($84,436), DDP Columbus. On April 29, 2009, KMJ issued Invoice KMJ/09/002 to Li & Fung for 13,248 sweaters (7,816 style no. 121257 sweaters at US $6.22/piece and 5432 style 121258 sweaters at US $6.32/piece), DDP Columbus. The total amount of the invoice is US $82,945.76. On May 25, 2009, KMJ issued payment instructions to Li & Fung authorizing Freight Management Company to receive US $27,237.02/HK $212,448.76 from Li & Fung for settlement of invoice no. KMJ/09/002. Remittance advice from Dah Sing Bank Ltd., dated June 18, 2009, issued to Freight Management Company, shows that US $27,210.13 was remitted by Li & Fung, “Partially settled of KMJ Limited for invoice KMJ/09/002”. A Local Bank Transfer printout dated July 28, 2009 shows a transfer in the amount of US $53,017.99 by Li & Fung to KMJ for invoice KMJ/09/002 ($55,625.79 minus certain charges). Other documents included in the record are an Air Waybill, freight and flight invoices, U.S. Customs entry documents and an undated letter, issued by KMJ, appointing Kinratex importer of record for the entry of invoice KMJ/09/002.
For both entries, counsel states that because the sellers in Hong Kong had no presence in the U.S., the Chinese manufacturer issued to Kinratex, the importer of record and the sellers’ alter ego in the U.S., invoices identical to the ones issued to the Hong Kong sellers.
ISSUE:
Whether transaction value may be used to appraise the merchandise under 19 U.S.C. § 1401a(b).
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. 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 five enumerated statutory additions. 19 U.S.C. § 1401a(b). 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 a seller, and it must be a sale for exportation to the United States. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the CAFC 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)).
The port advanced the values of the entries because it found that there was no evidence to support the values of the transactions between the Hong Kong sellers and the Chinese manufacturer claimed as the bases of appraisement at entry. Accordingly, the port appraised the merchandise based on the value of similar merchandise under the provisions of 19 U.S.C. § 1401a(c). In the protest, counsel conceded that the value claimed on entry could not be substantiated and claimed instead that the entries could be valued on the basis of the transactions between the Hong Kong sellers and the importer. The port denied the protest on the basis that no sale took place between the importer and the Hong Kong sellers and that, accordingly, the invoices submitted did not reflect authentic transaction values.
In determining whether a bona fide sale has occurred between a potential buyer and seller, no single factor is determinative. CBP reviews all the facts and circumstances of the transaction and makes its determination on a case-by-case basis. Dorf International, Inc. v. United States, 61 Cust. Ct. 604, A.R.D. 245 (1968). In making its determination as to whether property or ownership has been transferred, CBP initially considers whether the alleged buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, CBP may examine whether the purported buyer paid for the goods, and whether, in general, the parties are functioning as buyer and seller. See Headquarters Ruling Letters (“HQ”) HQ H006576, dated December 19, 2007; HQ 547071, dated November 1, 2001; HQ 545709, dated May 12, 1995; and HQ 545474, dated August 25, 1995.
Under the terms of their contracts with the U.S. buyer, the Hong Kong sellers held title to the merchandise and assumed the risk of loss until the merchandise arrived at the buyer’s warehouse in Columbus, Ohio. However, because the Hong Kong sellers had no legal presence in the U.S., they each deputized Kinratex to be their alter ego in the U.S. and to act as the importer of record. The Chinese manufacturer then issued to Kinratex, importer of record and HK Sellers’ alter ego, invoices substantially similar to the ones it issued to the Hong Kong sellers, except for the price. According to counsel, these second invoices accurately reflect the DDP prices, less post-export charges and selling commissions paid for the merchandise, and were issued in the name of Kinratex so that it could make entry on behalf of the Hong Kong sellers. We note that selling commissions are not an allowable deduction under the Valuation statue. See 19 U.S.C. § 1401a(b)(3).
In this case, there is no evidence of sales between the importer of record, Kinratex, and the Hong Kong sellers (KMJ and Willing Knitwear) or their agent (FMC), that is, there are no contracts with or payments by the importer of record. In addition, there is nothing in the record to indicate that the importer of record was an agent of the Hong Kong sellers or in any way related to their selling agent, FMC. Despite assertions by counsel that Kinratex was a selling agent, the letter of payment instruction from the Hong Kong seller, KMJ, to Li & Fung, Ralsey’s buying agent indicates an agency relationship between KMJ and FMC, not between KMJ and Kinratex. The payment of freight and import charges and duties by FMC for both Hong Kong sellers is also evidence that FMC, not Kinratex, acted as a selling agent. Moreover, the agent fee was paid by the Hong Kong sellers to FMC not Kinratex. We find, therefore, that the importer of record, which the Hong Kong sellers appointed to act as their “alter ego”, was neither the buying nor selling agent.
Given that the importer of record was not a party to any of the transactions detailed in the documents submitted to CBP, and was not acting as an agent of any of the parties, we find that the importer cannot rely on the documents of third parties to appraise its entries. As a result, the DDP sales between the Hong Kong sellers (Willing Knitwear and KMJ) and the buying agent (Li & Fung) for the U.S. buyer (Ralsey) cannot be used to establish the value of the imported merchandise. Therefore, transaction value is not available as a method of appraisement.
When imported merchandise cannot be appraised on the basis of transaction value, it is to be appraised in accordance with the remaining methods of valuation, applied in sequential order. The alternative methods of appraisement in order of precedence are: the transaction value of identical merchandise; the transaction value of similar merchandise; deductive value; and computed value. If the value of imported merchandise cannot be determined under these methods, it is to be determined in accordance with section 402(f) of the TAA. 19 U.S.C. § 1401a(a)(1). In this case, the port was able to appraise the merchandise based on the value of similar merchandise; therefore, this protest should be denied.
HOLDING:
The imported merchandise may not be appraised on the basis of transaction value because the importer was not a party to any of the transactions on which it sought to rely.
The protest should be denied. In accordance with the Protest/Petition Processing Handbook (CIS HB, December 2007), you are to mail this decision together with the Customs 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 the mailing of the decision. Sixty days from the date of the decision the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel and to the public on the CBP home page 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