OT:RR:CTF:VS H295538 CMR
Elon A. Pollack, Esq.
Stein Shostak Shostak Pollack & O’Hara
865South Figueroa Street
Suite 1388
Los Angeles, CA 90017
RE: “First Sale” Valuation; Footwear
Dear Mr. Pollack:
This is in response to your request of March 22, 2018, on behalf of your client, Fashion Major Brands, for a prospective ruling on the use of “first sale” valuation of certain importations of footwear into the United States. You submitted an update via letter, dated May 17, 2018, with regard to your client’s current practice regarding terms of sale, which you indicate your client’s transaction documents will reflect.
FACTS:
Fashion Major Brands is the importer and reseller of footwear in multi-tiered sales of footwear for export to the United States. Fashion Major Brands purchases footwear for its U.S. customers from its related parent company. Its parent company will purchase the footwear from manufacturers in China.
To illustrate the prospective transactions, representative documentation was submitted with this request. The documentation includes: (1) a purchase order to Fashion Major Brands from a U.S. customer; (2) a purchase order from Fashion Major Brands to its parent company in Spain; (3) a purchase order from the Spanish parent company to a manufacturer in China indicating FOB Origin terms of sale and that the merchandise will be shipped to California, USA; (4) an invoice from a Chinese manufacturer to the parent company in Spain indicating the goods will be produced for Fashion Major Brands, destined for California, USA, and the terms of sale are FOB Port of export Ningbo, China; and, (5) an invoice from the Spanish parent to Fashion Brands indicating the terms of sale are FOB China. You indicate that Fashion Major Brands will not provide any materials, trim or other assists to the manufacturers, other than labels, the value of which Fashion Major Brands will add to the entered value of imported footwear. Fashion Major Brands also provides unique marking instructions to manufacturers for its U.S. customers and you submitted examples of such instructions for our review. Counsel states that title passes with risk of loss.
Based on the submission of May 17, 2018, the Spanish parent will assume risk of loss and take title to the merchandise on an ex-factory basis and the transaction documents will so reflect. Fashion Major Brands will assume risk of loss and take title based upon FOB terms.
ISSUE:
Whether the submitted illustrative information supports the use of the sale between the parent company in Spain and the Chinese manufacturers of footwear as the sale for export to the United States for purposes of appraisement of footwear entered by Fashion Major Brands.
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).
Your client seeks to utilize the transaction value of the sale between the Spanish parent of the importer and manufacturers in China in the multi-tiered transaction described above. In 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), 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.
In this case, the Chinese manufacturers are not related to the importer’s Spanish parent who purchases the footwear from the manufacturers. As the parties are unrelated, the sale between them is presumed to be at arm’s length. The purchase order from the Spanish company indicates the merchandise is to be shipped to California, USA, and the corresponding invoice from the manufacturer indicates the destination as “California, USA,” and that the merchandise is shipped to an address in California. Thus, the prospective transaction meets the requirement of being an arm’s length transaction for goods clearly destined to the United States for purposes of transaction value. However, we must consider whether a bona fide sale occurs.
The Spanish parent will assume risk of loss and take title to the merchandise at the Chinese manufacturer’s factory door based upon ex-factory terms. The importer’s purchase order to its parent contains no Incoterms, and the invoice from its parent indicates FOB China. Based on the invoice, title and risk of loss passes from the parent to the importer when the goods are loaded on a vessel for export to the United States.
A review of the documentation submitted shows the flow of the ordering process from one party to the next. Proof of payment between the importer’s parent and the manufacturer has been presented. Based on the information presented to CBP, we are satisfied that the importer’s parent is acting as a buyer of merchandise destined for the United States from the Chinese manufacturer. Therefore, we agree that your client, Fashion Major Brands, has presented sufficient information to support making a claim for “first sale” appraisement of its merchandise.
HOLDING:
Based on the information the office reviewed, “first sale” transaction value appraisement may be utilized by Fashion Major Brands for the transaction described herein. Fashion Major Brands may be asked to present additional information to the ports for specific entries to support its use of “first sale” appraisement of those entries and should be prepared to present such information.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
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