RR:IT:VA 546128 RSD
Port Director
U.S. Customs Service
110 S. Fourth Street
Minneapolis, Minnesota 55401
RE: Application for Further Review of Protest Number 3501-94-1000154; concerning a sale for exportation of merchandise
pursuant to an alleged three tiered sale; Nissho Iwai Corp. v United States
Dear Sir:
This is in response to your memorandum dated September 8,
1995, from the director of the former Minneapolis District
forwarding the application for further review of protest number
3501-94-1000154, filed by Siegel, Mandel and Davidson on April
14, 1994, on behalf of Softsoap Enterprises Inc. Your office has
forwarded to us additional exhibits and letters submitted by
Siegel, Mandel and Davidson. You have also advised that your
office has been reviewing other issues in connection with the
relevant entries. We regret the delay in responding.
FACTS:
The importer Softsoap Enterprises Inc. (hereinafter of SEI)
based in Chaska, Minnesota, imported various plastic
shampoo/bubble bath bottle and parts thereof which were in the
shape of "Sesame Street" characters. The Sesame Street
characters are copyrighted, and the copyright is owned by
Children's Television Workshop, a not for profit corporation
based in New York City. The Children's Television Workshop
entered into a licensing agreement, which allowed SEI to sell
shampoo and bubble bath in containers resembling the Sesame
Street characters.
SEI claims that it purchased the plastic Sesame Street
figure bottles from a company called Trans Pacific Resources
(hereinafter TPR). It further alleges TPR bought the merchandise
from a Hong Kong based company, Deseado. The plastic bottles
themselves were made in China. The merchandise was entered and
duty paid on invoices from Deseado to SEI, the importer of
record.
The protest file contains a series of entry documents.
Included with the entry documents are copies of the invoices
prepared by Deseado for SEI. The invoices do not mention TPR and
show that the terms of sale were FOB Dongguan, China. There is
also a packing list prepared by Deseado which lists a description
of the merchandise and quantity to be shipped. The packing lists
indicate that the merchandise was to be shipped to Minneapolis
and to SEI and TPR Limited. In addition, attached were copies of
the licensing agreements with the amendments between SEI and the
Children Television Workshop. The packet also included a copy of
the ocean bill of lading which showed the consignee was SEI and
that TPR was to be notified of the delivery of the merchandise.
SEI has furnished three other sets of documents in support
of its position. One set of documents is labeled as "TPR Order
Confirmations". The order confirmations provide a description of
the merchandise, the quantity of merchandise to be purchased, the
price, and the shipping terms. They further indicate that the
merchandise was to be shipped to SEI. The next set of documents
are referred to as "debit notes" from Deseado. Two of these
debit notes were issued solely to TPR. They indicate the
quantity merchandise ordered and show an FOB Hong Kong price.
The remainder of the debit notes were issued to SEI in care of
TPR in Blooming, Minnesota. The last set of documents are
payments from TPR to Deseado drawn on the First Bank National
Association in St Paul, Minnesota.
ISSUE:
Whether the imported merchandise should have been appraised
based upon the transactions between the foreign seller, Deseado,
and an alleged middleman, TPR?
LAW AND ANALYSIS:
As you know 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 for the
United States," plus certain enumerated additions.
In Nissho Iwai American Corp. v. United States, 982 F.2d 505
(Fed. Cir. 1992), the Court reaffirmed the principle of E.C.
McAfee Co. v. United States, 842 F.2d 314 (Fed. Cir. 1988), that
a manufacturer's price, for establishing transaction value, 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 when the
manufacturer and the
middleman deal with each other at arm's length, in the
absence of any non-market influence that affect the
legitimacy of the sale price...[T]hat determination can only be made on a case-by-case basis.
Id. at 509. See also, Synergy Sport International, Ltd. v. United
States, 17 C.I.T.___, Slip Op. 93-5 (CT. Int'l Trade January 12,
1993).
As a general matter in situations of this type, 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 the
middleman purchased, or contracted to purchase, the imported
merchandise the goods were "clearly destined for export to the
United States" and that the manufacturer and middleman dealt with
each other at "arm's length."
In the instant case, the importer, SEI, is claiming that in
accordance with Nissho, that the transaction value for the
imported merchandise should be based on an alleged sale between a
middleman, TPR, and a foreign seller Deseado. In determining if
this claim is valid, the first question to be considered is
whether there was a bona fide sale between TPR and Deseado.
For Customs purposes, a "sale" generally is defined as a
transfer of ownership in property from one party to another for a
consideration. J.L. Wood v. United States, 62 CCPA 25, 33;
C.A.D. 1139 (1974). Although J.L. Wood was decided under the
prior appraisement statute, Customs recognizes this definition
under the TAA. Several factors may indicate whether a bona fide
sale exists between a potential seller and buyer. In determining
whether property or ownership has been transferred, Customs
considers whether the alleged buyer has assumed the risk of loss
and acquired title to the imported merchandise. In addition,
Customs may examine whether the alleged buyer paid for the goods,
whether such payments are linked to specific importations of
merchandise, and whether, in general, the roles of the parties
and circumstances of the transaction indicate that the parties
are functioning as buyer and seller. See Headquarters Ruling
Letter (HRL) 545705, January 27, 1995.
In determining whether the relationship of the parties to
the transaction in question is that of a buyer-seller, where the
parties maintain an independence in their dealings, as opposed to
that of a principal-agent, where the former controls the actions
of the latter, some of the relevant considerations are whether
the potential buyer: a) provided (could provide) instructions to
the sellers; b) was free to sell the items at any price he or she
desired; c) selected (or could select) his or her own customers
without consulting the seller; and d) could order the imported
merchandise and have it delivered for his or her own inventory.
See HRL 545612, May 25, 1995.
After reviewing the transaction documents in this case, we
are unable to conclude that bona fide sales occurred between
Deseado and TPR. We first note that there are no purchase
contracts or other documents that indicate that there were
specific dealings between TPR and Deseado. Significantly, no
invoices between Deseado and TPR have been presented. If there
were sales of the imported merchandise between Deseado and TPR,
we would expect that Deseado would have issued invoices to TPR
for the merchandise. Instead, Deseado issued invoices for the
merchandise to SEI. These invoices describe the merchandise
purchased, the quantity, the price, shipping terms, but do not
make even a reference to TPR. It was these invoices issued to
SEI that were presented to Customs. In addition, other documents
prepared by Deseado such as packing lists and air waybills
indicate that the merchandise was to be shipped to SEI, but do
not show that the merchandise was first sold to TPR.
The protestant has presented a series of documents in
support of its claim. The first set of documents prepared by
Deseado are labeled as "Debit Notes". Most of the debit notes
presented are addressed to SEI in care of TPR. These debit notes
do not establish that TPR ever had title to the merchandise or
was free to sell the merchandise to whomever it wanted at any
price it desired. The fact that most of these documents are
addressed to SEI in care of TPR seems to undermine the claim that
TPR was buying the merchandise directly from Deseado. Protestant
also presented additional documents referred as "TPR Order
Confirmations". However, these order confirmations do not make
reference to Deseado or any seller of the merchandise.
Consequently, these order confirmations do not establish that
TPR was buying merchandise from Deseado.
The protestant has also furnished bank records which do
show that money was debited from TPR's account in favor of
Deseado. However, these payment records also do not establish
that there were sales between TPR and Deseado. There are no
references to any invoices or purchase orders on the payment
records so it is hard to tie them directly to the purchase of any
merchandise. Moreover, although the payment records show a
transfer of funds, they by themselves do not establish that TPR
had title, bore risk of loss and could control destination of the
merchandise that are normally indicative of a sale. Therefore,
based on the totality of the evidence presented with the protest,
we conclude that protestant has failed to establish that there
was a sale between Deseado and TPR.
Accordingly, the protestant has failed to rebut the
presumption that the price the importer paid, as shown on the
invoices presented to Customs at the time of entry of the
merchandise, should serve as the basis of transaction value.
HOLDING:
Pursuant to the foregoing, the evidence presented with the
protest does not establish that there were sales for exportation
between the supplier, Deseado, and the alleged middleman, TPR
Therefore, transaction value of the imported merchandise should
be based on the price actually paid or payable by the importer.
You are directed to deny the protest. A copy of this
decision with the Form 19 should be sent to the protestant. In
accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive,
this decision should be mailed by your office 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 mailing of the decision. Sixty days
from the date of the decision, the office of Regulations and
Rulings will take steps to make the decision available to Customs personnel via the Customs
Rulings Module in ACS, and to the public via the Diskette
Subscription Service, the Freedom of Information Act and other
public access channels.
Sincerely,
Acting Director
International Trade Compliance
Division