CLA-2 OT:RR:CTF:VS H119455 HkP
Port Director
Port of San Francisco
U.S. Customs and Border Protection
555 Battery Street, Room 319
San Francisco, CA 94111
RE: Application for Further Review of Protest Nos. 2809-10-100143, 2809-10-100148, 2809-10-100159, and 2809-10-100263; Method of Appraisement
Dear Port Director:
This is in response to the Application for Further Review of Protest nos. 2809-10-100143, 2809-10-100148, 2809-10-100159, and 2809-10-100263, timely filed by counsel on behalf of Lincoln General Insurance Company (Lincoln General) and forwarded to our office by your port. Lincoln General is the surety for the importer of record, Link Tex, Inc. At issue is the method of appraisement used by U.S. Customs and Border Protection (CBP) to determine the value of certain entries of merchandise.
FACTS:
Eight entries of ladies and junior’s clothing were made by the importer between July 1, and October 10, 2008. Based on the record, the only documents filed with the entries were commercial invoices issued by a seller/middleman in Hong Kong to the importer, packing lists, and bills of lading. The port questioned the validity of the invoiced values of the garments and issued Requests for Information (CBP Form 28s) to the importer seeking documents supporting the merchandise values stated on the invoices for all entries. The importer failed to respond to the port’s requests.
As no documents were submitted in response to the Form 28s, between June 26, and September 25, 2009, CBP advanced the values of the imported merchandise. The importer failed to pay the liquidated duties on the revalued merchandise, prompting CBP to make formal demands on Lincoln General in its capacity as surety for payment of the subject duties. The demands were sent to Lincoln General on September 22, October 23, November 24, and December 23, 2009.
Between March 19, and May 25, 2010, Lincoln General timely filed the four captioned protests against CBP’s revaluation of the merchandise, pursuant to section 54(c)(2) of the Tariff Act of 1930, as amended by 19 U.S.C. § 1514(c)(3). Protests 2809-10-100148, 2809-10-100143, and 2809-10-100159 were denied by the port on April 19, 2010. These denials were subsequently set aside by the port and approved for further review. Protest 2809-10-100263 was filed on May 25, 2010, and approved for further review. For all the protests at issue, Protestant alleges that the port did not provide any reason for its denial of transaction value as the basis of appraisal for the merchandise at issue, and that the port did not provide an explanation of how it arrived at its appraised value. In addition, Lincoln General protests against any interest assessed as a result of the protested liquidation decisions taken by CBP.
ISSUE:
Whether transaction value may be used to appraise the imported 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 Court of Appeals for the Federal Circuit (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)).
Protestant’s argument is multi-pronged. First, it is argued that it is inappropriate for CBP to apply an appraisement method other than transaction value unless a finding is made that transaction value cannot be determined. See, for e.g., Peerless Clothing Int’l, Inc. v. United States, 637 F. Supp. 2d 1253, Slip Op. 09-86 (Ct. Int’l Trade 2009); 19 C.F.R. § 152.101(b). Protestant declares that there is no evidence in the instant case that CBP cannot determine the value of the goods based upon the invoiced values declared at entry, which were supported by commercial invoices and other documentation. Without evidence that the price paid or payable for the goods was other than that declared at entry, such as the absence of a sale, evidence of double invoicing or other impropriety or error, Protestant states that CBP may not disturb those values. In support of this position, Protestant cites Merck, Sharp & Dohme v. United States (Merck), 20 Ct. Int’l Trade 137; 915 F. Supp. 405 (1996). Protestant also argues that CBP’s belief that values are “too low” is not a legal basis for finding transaction value to be inapplicable.
In Merck, the issue before the court was the necessity for specific source documentation to be used to appraise the value of an assist under 19 U.S.C § 1401a(b)(1)(C). Merck claimed that the U.S. Customs Service (now CBP) erred because instead of appraising the assist based upon its cost of production, Customs used the value declared on the invoice, which represented a transfer price. At trial, it was found that the cost of production could be determined by examining the business records that Merck presented to the Court. However, Customs took the position that Merck had failed to prove that its cost of production figures were accurate because the company had not provided the specific documents requested by the agency. Id. at 138-39.
The Court noted that “Customs does not, as a matter of routine, require importers to produce source documentation in order to substantiate their cost of production figures…. Customs statutes and regulations do not require an importer to prove its case by submitting specific documentation.” Id. at 139. We note, however, that while the Court declined to require Merck to prove its cost of production figures in “a rigid and proscribed way,” it required Merck to prove the accuracy of its cost of production figures by providing evidence that the Court deemed “satisfactory”. See id. That evidence consisted of testimony by Merck’s witnesses and documents submitted by Merck to the court.
The transaction value of an assist, the basis of appraisement of which is the cost of production, is not at issue in this case. See 19 C.F.R. § 152.103 (d)(1). Consequently, we do not view Merck as being on point with the facts of the instant case. Moreover, the issue presently under consideration is not whether specific documentation was requested by CBP to substantiate the declared values of the merchandise. Indeed, the sufficiency and validity of the documents submitted, namely the invoices issued by a seller/middleman in claiming those values, is questioned.
19 U.S.C. § 1401a(b)(1) provides, in relevant part, “[i]f sufficient information is not available, for any reason, with respect to any amount referred to in the preceding sentence [price actually paid or payable plus amounts for the five statutory additions], the transaction value of the imported merchandise shall be treated, for purposes of this section, as one that cannot be determined.” In turn, 19 U.S.C. § 1401a(h)(5)(A)(i) states, “[t]he term ‘sufficient information’, when required under this section for determining any amount added under subsection (b)(1) to the price actually paid or payable, means information that establishes the accuracy of such amount.”
The port sent several requests for information to the importer and to the broker because the port deemed the invoices and packing lists submitted with the entries to be insufficient to substantiate the prices of the merchandise listed on the invoices. For example, no purchase orders or payment information for the merchandise or for packing were submitted with the entry documents. After not receiving a response to any of its requests for information, CBP researched the importer of record and purported purchaser of the imported merchandise and found that it was a non-existent business entity.
In VWP, the CAFC stated, “[n]eedless to say, a transaction that is a sham, for example, because one of the parties to the transaction is in fact a nonexistent fraudulent entity, may not properly serve as the basis for transaction value under 19 U.S.C. §1401a(a)(1)…. Neither could such an entity participate in the sale of merchandise for export to the United States for purposes of 19 U.S.C. § 1401a(b)(1).” VWP at 1337.
Based on the fact that the importer of record was a nonexistent fraudulent entity, it could not have participated in the sale of merchandise for export to the U.S. Consequently, the transaction value method of appraisement would have been inappropriate. See id. Further, under the provisions of 19 U.S.C. § 1401a (b)(1) and 1401a(h)(5)(A)(i), the port was correct in not using transaction value to appraise the imported merchandise because there was insufficient information to verify the accuracy of the invoiced values.
When transaction value is not available as an appraisement method, the remaining methods of appraisement set forth in 19 U.S.C. § 1401a must be applied in sequential order. The alternative methods of appraisement, in order of precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)); deductive value (19 U.S.C. § 1401a(d)); computed value (19 U.S.C. § 1401a(e); and the "fallback" method (19 U.S.C. § 1401a(f)).
Protestant also argues that even if CBP has grounds for claiming the invoice values are inaccurate and transaction value is inapplicable, CBP has not provided any evidence that the “similar merchandise” being used to appraise the subject goods is in fact commercially interchangeable with these goods. Third, and as a corollary to the second argument, Protestant argues that the agency is prohibited from appraising goods based upon arbitrary or fictitious values, such as by comparing values with goods that are not commercially interchangeable. See 19 U.S.C. § 1401a(f)(2)(G).
The transaction value of identical or similar merchandise is based on sales at the same commercial level and in substantially the same quantity of merchandise exported to the United States at or about the same time as the merchandise being appraised. See 19 U.S.C. § 1401a(c). According to the record, it was not possible to appraise the merchandise on the basis of the transaction value of identical or similar merchandise because the port was unable to ensure that other entries in the same subheading and from the same country of origin were of the same component materials and characteristics as, or were commercially interchangeable with, the goods being appraised.
Under the deductive value method, merchandise is appraised on the basis of the price at which it is sold in the U.S. in its condition as imported and in the greatest aggregate quantity either at or about the time of importation, on or before the close of the 90th day of importation. See 19 U.S.C. § 1401a(d)(2)(A)
(i),(ii). This price is subject to certain enumerated deductions. See 19 U.S.C. § 1401a(d)(3). Based on the record, the port was not given any information on the U.S. sales price of the merchandise. Consequently, the deductive value method was inapplicable.
Under the computed value method, merchandise is appraised on the basis of the material and the processing costs incurred in the production of imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. See 19 U.S.C. § 1401a(e). No information on these various elements was provided, making the computed value method also unavailable as an appraisement method.
When the value of imported merchandise cannot be determined under the methods set forth in 19 U.S.C. § 1401a(b)-(e), it may be appraised on the basis of a value derived from one of those methods, reasonably adjusted to the extent necessary to arrive at a value. This is known as the “fallback” valuation method. Certain limitations exist under this method, however. For example, merchandise may not be appraised on the basis of the price in the domestic market of the country of export, the selling price in the United States of merchandise produced in the U.S., minimum values, or arbitrary or fictitious values. See 19 U.S.C. § 1401a(f); CBP Regulations, Part 152, Section 152.108 (19 C.F.R. § 152.108).
Under Section 500 of the Tariff Act of 1930, as amended, which constitutes CBP’s general appraisement authority, the appraising officer may:
[F]ix the final appraisement of merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, other document to the contrary notwithstanding[.]
19 U.S.C. § 1500(a).
In this regard, the Statement of Administrative Action (“SAA”), which forms part of the legislative history of the TAA provides, in pertinent part:
Section 500 is the general authority for Customs to appraise merchandise. It is not a separate basis of appraisement and cannot be used as such. Section 500 allows Customs to consider the best evidence available in appraising merchandise. It allows Customs to consider the contract between the buyer and seller, if available, when the information contained in the invoice is either deficient or is known to contain inaccurate figures or calculations…. Section 500 authorize [sic] the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise. This could be the invoice, the contract between the parties, or even the recordkeeping of either of the parties to the contract.
In those transactions where no accurate invoice or other documentation is available, and the importer is unable, or refuses, to provide such information, then reasonable ways and means will be used to determine the appropriate value, using whatever evidence is available, again within the constraints of section 402.
Statement of Administrative Action, H.R. Doc. No. 153, 96 Cong., 1st Sess. Pt 2, reprinted in Department of Treasury, Customs Valuation under the Trade Agreements Act of 1979 (Oct. 1981), at 67.
Section 152.107 of the CBP Regulations (19 C.F.R. § 152.107) provides:
Reasonable adjustments. If the value of imported merchandise cannot be determined or otherwise used for the purposes of this subpart, the imported merchandise will be appraised on the basis of a value derived from the methods set forth in §§ 152.103 through 152.106, reasonably adjusted to the extent necessary to arrive at a value. Only information available in the United States will be used.
Identical merchandise or similar merchandise. The requirement that identical merchandise, or similar merchandise, should be exported at or about the same time of exportation as the merchandise being appraised may be interpreted flexibly. Identical merchandise in any country other than the country of exportation or production of the merchandise being appraised may be the basis for customs valuation. Customs valuation of identical merchandise, or similar merchandise, already determined on the basis of deductive value or computed value may be used.
In HQ 544746 (Nov. 12, 1991), this office responded to an importer’s protest against CBP’s valuation of a complete group of parts and accessories, less the frame, for a Russian DSHK 38 machine gun. The following documents were submitted in support of the protest: an executed import permit from the Bureau of Alcohol, Tobacco and Firearms; a packing list; an invoice, which listed the price of the imported items as $100; and, a letter from the importer stating that he paid $100 for the parts and a sales commission of $1,250 to the middle man who secured the parts. CBP found that, given the merchandise, the port was correct in not relying on the stated transaction value but that it’s method of appraisement was incorrect. In addition, there was insufficient information for the port to have utilized any of the methods of appraisement set out in 19 U.S.C. § 1401a, other than the fallback method under subsection 1401a(f). Relying on the information in the record, we determined that the value of the parts was the sum of their invoiced price and the sales commission paid by the importer.
Likewise, in this case, the port was unable to rely on the documents presented by the importer to determine the transaction value of the imported merchandise, and did not have sufficient information to apply a method of appraisement other than the fallback method. In addition, samples of the merchandise were not provided to CBP and the port’s repeated attempts to contact the importer so that it could substantiate the values claimed were unsuccessful. The port determined the value under 19 U.S.C. § 1401a(f) on the basis of reasonable adjustments to the transaction value of similar merchandise as provided for in 19 U.S.C. § 1401a(c). Specifically, the port used the available data on merchandise classified in the same subheading and imported from the same countries at or about the same time as the merchandise being appraised. The figures arrived at accounted for differences in the component materials, characteristics, and commercial interchangeability of the goods that could not otherwise be ascertained. These facts indicate that the values derived by the port for the merchandise being appraised were neither arbitrary nor capricious.
U.S. Customs Law requires that merchandise imported into the United States be appraised. See 19 U.S.C. § 1401a. Based on the information in the record, the methodology used by the port constituted reasonable adjustments, pursuant to 19 U.S.C. § 1401a(f), of the transaction values of similar merchandise as provided for under 19 U.S.C. § 1401a(c). This was consistent with the port’s authority under 19 U.S.C. §§ 1401a(f) and 1500.
HOLDING:
The imported merchandise may not be appraised on the basis of the prices on the invoices submitted by the middleman/seller in Hong Kong to the importer, Link Tex. The correct basis of appraisement is 19 U.S.C. § 1401a(f), which allows for reasonable adjustments to the transaction value of similar merchandise under 19 U.S.C. § 1401a(c). The port’s use of adjusted values of similar merchandise from the same countries was reasonable.
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 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 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 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