OT:RR:CTF:VS H235529 RSD
U.S. Customs and Border Protection
9901 Pacific Highway
Blaine, WA 98230
RE: Protest Number 3004-12-100031; Valuation of Children’s Clothing Imported from
Canada; Intercompany Transfer without a Sale for Export; Fallback Method; Identical and Similar Merchandise; 19 U.S.C. 1401a(f)
Dear Port Director:
This is in response to your memorandum dated November 6, 2012, forwarding the above referenced Protest 3004-12-100031, filed by the importer, Canadian Kidswear, Inc. (Canadian Kidswear) concerning the valuation of various items of children’s apparel imported from Canada. Our decision follows.
On May 16, 2011, the importer, Canadian Kidswear, imported a shipment of merchandise containing various items of children’s apparel from Canada. According to the invoices contained in the record, the shipment contained merchandise that Canadian Kidswear had purchased in 2006 and 2007 with a country of origin of China. The merchandise was first imported into Canada during the years 2006 and 2007. Protestant claims that the imported merchandise consisted of old and outdated inventory that was stored in their Canadian warehouse. Protestant further claims that they were unable to sell the merchandise even at cost within Canada. Because the merchandise remained unsold in Canada, Protestant decided to export it to the United States, where Protestant thought that there might be interest in the merchandise among U.S. discounters and clearance buyers. Through an intra-company transaction, the merchandise was shipped to the United States, and thus when the merchandise was imported into the United States, it had not yet been sold to another party. The goods were shipped from Canada to a storage locker facility near Ferndale, Washington, about 15 miles south of the U.S.–Canadian border.
Protestant contends since the merchandise was first imported into Canada in 2006 and 2007, its value declined significantly at the time it was transferred to the United States because the styles did not hold up with current fashion trends. Consequently, in declaring a value to Customs and Border Protection (CBP), Protestant depreciated the value of the merchandise for each year prior to its shipment to the United States. However, Protestant did not explain how it determined the exact percentage of depreciation for each year.
Protestant states that at the time of import into the United States, it had no buyers for the merchandise, so it contacted many retailers that might be interested in clearance/mark down merchandise. Protestant further claims at that time because of the difficult economic conditions, many retailers had trouble selling even new merchandise at regular prices, and in this case the merchandise was old and difficult to sell.
During the Port’s examination of the shipment, it was discovered that the shipment contained merchandise not listed on the invoice. In this regard, Protestant indicates that some merchandise may not have been listed on the invoice at the time of entry due to an unintentional employee accounting error during the counting, packing, and data entry process.
After the release of the goods in the instant shipment, a Department of Homeland Security Investigative (HSI) agent in Blaine followed the importer’s driver and observed him dropping off the goods at a storage locker facility about 12 miles south of the border. The Port believes that the goods were then shipped out of this storage locker facility location to U.S. buyers.
Because there was no sale for export to the United States, the Port determined that the merchandise could not be appraised using transaction value. Accordingly, the Port attempted to obtain information from the importer regarding the price at which the goods contained in the shipment were eventually sold to customers in the United States. To obtain the necessary value information, the Port issued a Customs Form 28 (CF 28) Request for Information, and also had a face-to-face meeting with the importer. Due to the importer’s lack of cooperation, your office states these efforts proved to be unsuccessful, and thus your office was unable to obtain the necessary information to determine the value of the merchandise from the importer. In addition, after this incident, Canadian Kidswear ceased importing through the Port of Blaine, so there was no opportunity to examine any additional shipments around the time period of the shipment at issue. As a result, the Port determined that there was insufficient information available to appraise the imported merchandise based on the sale of identical or similar merchandise at or about the same time as the merchandise imported. In addition, the Port further concluded that there was also insufficient information to use computed value or deductive value to appraise the imported merchandise. Accordingly, the Port concluded that the most suitable method of appraising the merchandise would be to use the fallback method. To appraise the merchandise under the fallback method, the Port used the internet to identify U.S. businesses that were selling Canadian Kidswear product lines. The Port was able to identify the same garment styles offered for sale on the internet at significantly higher prices during August 2011.
As part of the process to determine the proper value for the merchandise, a HSI agent in Blaine issued subpoenas to U.S. companies selling Canadian Kidswear merchandise and obtained invoices reflecting the actual sales prices paid by U.S. entities to Canadian Kidswear for merchandise that was identical or similar to the merchandise contained in the merchandise under consideration that occurred between August and December 2011. Since the items on the instant shipment were sold after importation into the United States, the Port used copies of subsequent sales invoices between Canadian Kidswear and their U.S. customers, to find transactions for identical and similar merchandise. Using the fallback method, the Port then applied the values reported from the subsequent sales of identical and similar merchandise as the basis of appraisement for comparable items in the instant shipment. However, the instant shipment contained some raincoats and because no subsequent sales invoices could be found for these same raincoats, the Port appraised the raincoats based on the price of similarly styled merchandise imported around the same time period as the shipment under review.
After the goods were imported into the U.S., Canadian Kidswear provided the Port with a copy of an invoice dated August 12, 2011, covering the sale of the wearing apparel to a company called India Bazaar located in Lakewood, Washington. Canadian Kidswear also provided a copy of a check dated August 27, 2011 from India Bazaar made payable to Canadian Kidswear. While the value reported on the invoice to India Bazaar closely approximated the value reported for the entry, the Port noted that the quantities and style numbers of the merchandise did not match. Moreover, according to the India Bazaar website, it was a company in the business of selling traditional Indian wearing apparel. According to the Port, this made the purchase of western styled children’s apparel from Canadian Kidswear appear to be somewhat suspect because the merchandise contained in the shipment was not the type of merchandise that India Bazaar advertised for sale on its website. Canadian Kidswear provided no explanation for this abnormality. In addition, Canadian Kidswear was not able to provide a copy of the freight bill for the transportation of the shipment, as requested by CBP, to show that goods were actually shipped to India Bazaar. With these discrepancies, the Port believed that Canadian Kidswear did not provide CBP with sufficient documentary evidence to substantiate that the goods covered by the invoice were actually shipped to India Bazaar in August 2011, and the invoice was disregarded in appraising the imported merchandise.
Whether the Port acted properly in appraising the imported children’s apparel under the fallback valuation method using the described modified version of the transaction value of similar or identical merchandise?
LAW AND ANAYSIS:
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 merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. In the instant case, the imported merchandise was imported into the U.S. as a result of an intercompany transfer and was not the subject of a sale for exportation. Therefore, the imported merchandise cannot be appraised under the transaction value method set forth in section 402(b) of the TAA. 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 considered. 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)). Considering the facts presented in this case, in which due to the importer’s lack of cooperation regarding valuation of the imported merchandise, we agree with the Port that there was insufficient information to apply the alternative methods of appraisement described in 19 U.S.C. § 1401a(b) through § 1401a(e).
When the value of imported merchandise cannot be determined under 19 U.S.C. § 1401a(b) through 1401a(e), it may be appraised under 19 U.S.C. § 1401a(f) 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. However, certain limitations exist under this method. 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. 19 U.S.C. § 1401a(f); 19 CFR § 152.108.
Under section 500 of the Tariff Act of 1930, as amended, which constitutes CBP’s general appraisement authority, the appraising officer may:
fix 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) (emphasis added)
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 the Treasury, Customs Valuation under the Trade Agreements Act of 1979 (October 1981), at 67.
Section 152.107(b) of the CBP regulations (19 CFR § 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 values of identical merchandise, or similar merchandise, already determined on the basis of deductive value or computed value may be used.
As a result of the importer’s lack of cooperation in appraising the imported merchandise, the value of the imported children’s apparel that is the subject of the instant protest may be determined under the fallback method provided for in section 402(f) of the TAA, by using all reasonable ways and means, so long as the method used is not specifically precluded under section 402(f)(2)(D) of the TAA. In this instance, we note that the Port made several requests to the importer for information regarding the valuation of the imported merchandise, but the importer refused to provide the necessary information to assist the Port in appraising the imported merchandise. Under these circumstances, we find that the method the Port used in appraising the merchandise through first identifying U.S. businesses that sold the Protestant’s product lines during the applicable time period, and then obtaining prices listed on copies of the sales invoices from the Protestant to their U.S. customers in transactions of merchandise comparable to merchandise contained in the shipment under protest was an acceptable method of appraisement. Therefore, we find that this approach constitutes a valid application of a modified version of the transaction value of identical or similar merchandise under the fallback method set forth in 19 U.S.C. § 1401a(f). While the Port was unable to find the specific raincoats similar to those contained in the shipment on the invoices obtained from the importer’s U.S. buyers, again under situation presented, we also find that the Port also acted properly in appraising the raincoats when it used a modified version of the transaction value of similar and identical merchandise under the fallback method as specified in 19 U.S.C. §1401a(f). Furthermore, we agree with the Port that the importer has not provided adequate evidence to substantiate its claim that the imported merchandise was actually sold to India Bazaar.
Based on the circumstances of this case, where there was no sale for exportation and the importer would not provide sufficient information necessary for an alternative valuation under 19 U.S.C. § 1401a(b) through § 1401a(e), we find that the Port acted properly in appraising the imported children’s apparel through the use of a modified version of transaction value of identical or similar merchandise under the fallback valuation method set forth in 19 U.S.C §1401a(f). Therefore, the protest should be DENIED.
In accordance with the Protest/Petition Processing Handbook (CIS 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 this 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.
Myles B. Harmon, Director,
Commercial & Trade Facilitation Division