RR:IT:VA 546450 EK
Alan R. Klestadt, Esq.
Grunfeld, Desiderio, Lebowitz & Silverman
245 Park Avenue
New York, NY 10167-0002
RE: Sale for Exportation to the United States; Nissho Iwai; Prospective Ruling Request
Dear Mr. Klestadt:
This is in response to your letter of July 17, 1996, and a subsequent submission dated December 9, 1996, regarding a prospective ruling request on behalf of your client, Lane Bryant, Inc., (hereinafter referred to as importer). You are requesting a ruling regarding the proper transaction value of importations of ladies= wearing apparel from Korea. This ruling only applies to prospective importations of wearing apparel by your client.
FACTS:
You state that the importer is a retailer of ladies= wearing apparel. Regarding merchandise imported from Korea, the merchandise is purchased by the importer from unrelated trading companies. The trading companies provide the requisite quota and purchase the fabric and subcontract the actual manufacture of the wearing apparel to unrelated factories in Korea. The unrelated factories invoice the trading companies for the manufacturing charges, and the trading companies then issue F.O.B. invoices to the importer. These invoice prices include the ex-factory cost of the garments, plus the trading company=s mark-up.
You have submitted the following documentation which you indicate is representative of the manner in which the importer does business in Korea. A purchase order from the importer to its buying agent in Hong Kong, Li & Fung (Trading) Ltd. that provides for the purchase of 14,280 ladies tee shirts at an F.O.B. price in dollars. Li & Fung then places the order with Suy Co., Ltd., a Korean trading company (middleman). Suy Co. then subcontracts the actual manufacture of the merchandise to Kusang Corp. (manufacturer). The manufacturing contract provides that Kusang will produce 9,240 units of a specific style on a cut and sew basis. The contract price is in
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Korean won. It references the importer, the importer=s purchase order number, and style #7369V. You have also submitted a copy of a receipt issued by Kusang to Suy for the cut and sew charge on the merchandise. It also references the importer, the importer=s purchase order number and style #7369V. You indicate that the trading company supplies the export quota. The commercial invoice to the importer indicates a total F.O.B. price for 9,240 units of style #7369V. In a subsequent submission dated December 9, 1996, you indicate that the purchase order of the 14,280 unit shipment described was imported in three shipments, i.e., 9,240 units and two subsequent shipments of 2,520 units each. In addition, you state that the merchandise is shipped directly to the importer. We assume this means that the merchandise is not shipped first to the middleman but is shipped directly from the manufacturer to the importer. You indicate that the merchandise is specifically made to order for the importer and at all times, is clearly destined for the United States.
ISSUE:
Based upon the evidence submitted, whether transaction value is appropriately based on the price actually paid or payable by the importer to Suy Co. (middleman) or that between Suy Co. and Kusang Corp. (manufacturer).
LAW AND ANALYSIS:
Merchandise that is 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). Transaction value, the preferred method of appraisement, is defined in section 402(b) of the TAA as the Aprice actually paid or payable for the merchandise when sold for exportation to the United States,@ plus certain enumerated additions.
In order for imported merchandise to be appraised pursuant to transaction value, a bona fide sale must exist between the parties. Customs recognizes that the term Asale,@ as articulated in J.L. Wood v. U.S., 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974), means the transfer of property from one party to another for consideration. In determining whether a bona fide sale has taken place between a potential buyer and seller of imported merchandise, no single factor is determinative. Rather, Customs reviews all the facts and circumstances present and makes each determination on a case-by-case basis.
You have submitted a contract for the actual manufacture of the merchandise between Suy Co. and Kusang Corp. The contract provides for the factory to produce the garments on a cut and sew basis. The contract indicates that Suy Co. bears all
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costs and charges for shipping the merchandise from the warehouse in accordance
with the shipping schedule provided in the letter of credit. In addition, you have submitted a copy of a receipt issued by Kusang Corp. to Suy Co. for the cut and sew charge on the merchandise. These parties are not related. From the evidence submitted, you have established that there exists a bona fide sale between Kusang Corp. and Suy Co. In order for this sale to be considered in determining transaction value, it must be a sale for exportation to the United States.
In Nissho Iwai American Corp. vs. United States, 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. The court reaffirmed the principle of E.C. McAfee Co. vs. 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.
Customs presumes that the price paid by the importer is the basis of transaction value. However, in order to rebut this presumption the importer must, in accordance with the court=s standard in Nissho, provide evidence that establishes that at the time it purchased, or contracted to purchase, the imported merchandise, the goods were Aclearly destined for export to the United States@ and that the manufacturer and the
middleman dealt with each other at Aarm=s length.@ Customs has held that it is the
importer=s responsibility to demonstrate that the standard set forth in Nissho has been met.
In this case, you state that Kusang Corp. and Suy Co. are not related parties. Therefore, it is assumed that they deal with one another on an arm=s length basis. 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 exportation to the United States.
You have indicated that the merchandise is made to order for the importer pursuant to the retailer=s specifications. In addition, you state that the merchandise is shipped directly to the importer=s premises. A representative purchase order from the importer to Suy Co., and the subsequent manufacturing contract between Kusang Corp. and Suy Co. affirms that the merchandise is made to order as per the requirements of the importer for retail sale in the United States. In addition, the receipt
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issued by Kusang Corp. to Suy Co. indicates ALane Bryant, Inc.@, indicating that Kusang acknowledges that the merchandise is destined for the importer, Lane Bryant.
While the information presented in regard to the first sale supports your contention that the merchandise is clearly destined for export to the U.S. at the time it is sold by the manufacturer to the middleman, sufficient documentation must be
available and presented to Customs, if requested. This documentation may include, purchase orders, shipping documents, commercial invoices, proof of payment and any other pertinent documentation relating to both the manufacturer-middleman sale, as well as the middleman-importer sale. See, T.D. 96-87, Determining Transaction Value in Multi-Tiered Transactions. Complete English translations of the pertinent documents would be required. Assuming the documentation supports the information submitted in your ruling request, it is our position that the merchandise is clearly destined for export to the United States and that the sale is at arm=s length, such that the sale between Kusang Corp. to Suy Co. may constitute the appropriate basis of appraisement.
HOLDING:
Based upon the information presented in your ruling request and subsequent submissions, and subject to the provisos noted above, the transaction value may be based on the sale between Kusang Corp. and Suy Co.
Sincerely,
Acting Director, International
Trade Compliance Division