RR:IT:VA 546681 RC
Port Director
U.S. Customs Service
300 S. Ferry Street
Terminal Island, California 90731
RE: Application for Further Review; sale for exportation of
merchandise pursuant to three- tiered sale; Nissho Iwai
America Corp. v. United States
Dear Director:
This is in response to your memorandum, May 4, 1997,
forwarding the application for further review of protest number
2704-96-103060, filed by Grunfeld, Desiderio, Lebowitz &
Silverman on behalf of CAS Inc. (CAS), on October 9, 1996. The
protest concerns the appraisement of men's short pants made in
Hong Kong and covers two entries. CAS, the importer of record,
entered the goods through the port of Los Angeles on December 29,
1994, and February 15, 1995. On May 1, 1998, we advised counsel
for the protestant that the protest lacked pertinent information.
In response, on May 21, 1998, we were advised that CAS did not
intend to make any further submissions. We regret the delay in
responding.
FACTS:
The goods, consisting of men's woven cotton short pants
made in Hong Kong, were purchased pursuant to a four-tiered sales
arrangement. CAS allegedly bought the goods from Jaiddex Develop
Corp. (Jaiddex), a middleman, located in Taipei, Taiwan, who, in
turn, purchased the goods from Mantex Trading Company (Mantex), a
middleman located in Hong Kong, who bought the goods from various
factories in Hong Kong. CAS also used the services of a buying
agent, Dragon Union Ltd., located in Hong Kong. The merchandise
was appraised under transaction value based on the price paid by
CAS to Jaiddex. CAS claims that transaction value should be
based on the price Jaiddex paid Mantex.
CAS claims that Mantex and Jaiddex are unrelated parties,
which may be presumed to deal with each other at arm's length.
Submitted invoices and proof of payment identify the parties to
the transaction, as well as, the style number, order confirmation
number and quantity. Submitted invoices, on Mantex's letterhead,
describe these transactions. Submitted bank documents confirm
Jaiddex's payment of the invoiced prices. Identifying numbers
that appear on a submitted invoice match numbers appearing on
other shipping documents. The dates that appear on the
remittances correspond to the relevant transactions. Also, the
amounts of money on the remittances correspond to the prices of
the goods shown on the invoices.
The protestant claims that the factory sale is based upon a
"pre-existing" purchase order issued by CAS to Jaiddex through
CAS's buying agent, Dragon Union. CAS does not attempt to
establish a value at the factory level, but claims that based on
the information submitted, in accordance with Nissho, the
transaction value for the imported merchandise should be based on
the sale between Mantex and Jaiddex.
The terms of sale for the purchase of the merchandise in the
transaction between Jaiddex and Mantex are FOB Hong Kong.
Likewise, the terms of sale for the purchase of the merchandise
in the transaction between CAS and Jaiddex are FOB Hong Kong. No
purchase orders per se were submitted for review. Order
confirmations were submitted for the transactions between CAS and
Jaiddex. However, neither purchase orders nor order
confirmations were submitted for the alleged transactions between
Jaiddex and Mantex.
ISSUE:
Whether the imported merchandise was appraised correctly?
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 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 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 addition to review of relevant
documentary evidence, the facts must describe in detail the roles
of all the various parties pertaining to each transaction that
was involved in the exportation of the merchandise to the United
States. If there is more than one possible sale for exportation,
information and documentation about each of them should be
provided. Relevant documents include, purchase orders, invoices,
proof of payment, contracts and any additional documents (e.g.
correspondence) which demonstrate how the parties dealt with one
another and which support the claim that the merchandise was
clearly destined to the United States. If any of these documents
do not exist, or exist but are not available, the ruling request
should so provide. What we are looking for is a complete paper
trail of the imported merchandise showing the structure of the
entire transaction. If the request covers many importations, it
is acceptable to submit documents pertaining to some of the
importations provided complete sets of documents are furnished,
the underlying circumstances are the same, and the documents are
representative of the documents used in all the transactions.
Any differences should be explained.
In a recent case that reflects the Customs position, HRL
546658, dated January 30, 1998, we indicated that it must be
evident throughout the transaction that the merchandise is
clearly destined for the United States and that it is not
sufficient to establish after the merchandise was ordered and
manufactured, at the time of shipment, near the end of the
transaction, that it will be going to the United States. There,
we determined that evidence that the boxes of the imported
articles were addressed to the United States when delivered to
the carrier was insufficient by itself to establish that the
articles were clearly destined to the United States.
In the instant case, the protestant contends that based on
the Nissho and Synergy decisions, the transaction value for the
imported merchandise should be based on the sales between the
Mantex and Jaiddex. In determining if this claim is valid, the
first question to be addressed is whether there was a bona fide
sale between these middlemen.
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 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, HRL 545542, dated
December 9,
1994; HRL 545705, dated January 27, 1995; HRL 545550, dated
September 13, 1995; HRL 545980, dated December 12, 1995; HRL
546128, dated July 26, 1996; and HRL 546225, dated April 14,
1997.
Customs ruled on a similar transaction in Headquarters
Ruling Letter (HRL) 545980, dated December 12, 1995. There,
where the instant protestant, CAS, imported wearing apparel from
a factory in Singapore, Customs found that the sale between the
factory and the middleman, Jaiddex, was not properly documented.
Additionally, title and risk of loss passed from the factory to
the middleman, then immediately to the importer. Customs also
noted that proof of payment from the middleman to the factory was
not adequate, in that payment could not be matched up with the
transactions. Consequently, Customs held that a bona fide sale
did not exist between the factory and the middleman.
The protestant claims that the instant facts are
distinguishable from those in HRL 545980, in that, the first sale
between Mantex and Jaiddex is clearly supported by separate
invoices issued by Mantex to Jaiddex and by Jaiddex to CAS.
These invoices are accompanied by proof of payment which clearly
identify the parties to the transaction as well as the style
number, order confirmation number and quantity. Invoices on
Mantex's letterhead describing these transactions have been
presented with the entry and protest papers. Bank documents
substantiating Jaiddex's payment of the invoiced prices have been
submitted with the protest. The protestant states that Mantex
and Jaiddex are unrelated parties, which may be presumed to deal
with each other at arm's length.
As in HRL 545980, where the terms of sale in the
transactions between the middlemen and the subsequent transaction
between the middleman and the importer were both FOB Singapore,
here, with respect to the transactions between Mantex and
Jaiddex, and between Jaiddex and CAS, the terms of sale were both
FOB Hong Kong. Since merchandise was shipped directly from the
factory to the ultimate consignees, as opposed to being shipped
from the seller to an intermediary and then to the ultimate
consignee, the terms of sale indicate that there was passage of
title from the seller to the intermediary then immediately
thereafter from the intermediary to the importer. Likewise, in
this case, we note that based solely on the terms of sale, the
intermediaries, Mantex and Jaiddex, are considered to hold title
momentarily, if at all, and did not acquire title or bear the
risk of loss according to the terms of sale. Based solely on the
shipping terms alone, a bona fide sale would not appear to exist
between the Mantex and Jaiddex.
In order to base transaction value on a sale between
particular middlemen, to wit, Mantex and Jaiddex, there must be a
complete paper trail and sufficient information regarding the
statutory additions. A complete paper trail would include
purchase orders, contracts, commercial invoices, proof of
payment, a description of the roles of the parties, etc. These
documents and descriptions should be consistent with a
traditional buyer-seller relationship. Notwithstanding the
shipping terms, the paper trail of documentation submitted in the
instant case appears is more complete than in HRL 545980.
With respect to the payment documents submitted, the letters
of credit evidence payment from CAS to Jaiddex. Other letters of
credit evidence payment from Jaiddex to Mantex. With regard to
purchase orders, there is an absence of purchase orders per se in
the transactions between CAS and Jaiddex. The protestant claims
that there are pre-existing purchase orders between CAS and
Jaiddex that are consistent with all the other documents
submitted. To support its position, the protestant produced
purchase order confirmations for the transactions between CAS and
Jaiddex. We find that these purchase order confirmations
submitted to establish that the alleged pre-existing purchase
orders indeed existed are self-serving. A purchase order
confirmation is not adequate to establish the existence of an
actual purchase order. The transaction documents submitted do
not show a complete paper trail. In fact, no documents, such as
copies of the original pre-existing purchase orders, have been
submitted to corroborate the protestant's claim that the pre-existing purchase orders ever existed. Furthermore, we have not
even been provided with either purchase orders or order
confirmations concerning the transactions between Jaiddex and
Mantex. Therefore, based on all the evidence submitted, the
protestant has not established that there was a bona fide sale
for exportation between Mantex and Jaiddex.
With regard to the clearly destined requirement, the Court
of International Trade and the Court of Appeals for the Federal
Circuit have considered whether throughout the entire transaction
(including the time of production) the goods were destined only
for the U.S. In E.C. McAfee Co. v. United States, 842 F.2d 314
(Fed Cir. 1988), the CIT indicated that where clothing is
made-to-measure for individual United States customers and
ultimately sent to those customers, the reality of the
transaction between the distributors and the tailors is that the
goods, at the time of the transaction between the distributors
and tailors are for exportation to the United States. The court
found that the merchandise was being made for export to the
United States. Similarly, in Nissho Iwai, supra, the subway cars
in question were ordered and manufactured for a specific
purchaser in the United States, the Metropolitan Transit
authority of New York City. As such, the court found that the
subway cars were unquestionably intended for exportation to the
United States and had no alternative destination. Finally, in
Synergy, supra, the CIT found that the merchandise involved was
clearly destined for export to the United States. In this
regard, the decision states that "not only were the goods shipped
directly from Chinatex to Oakland, California, but also "the
labels required to be placed on the garments . . . reflect the
fact the goods are destined for the United States, and always
for a particular ultimate customer." Synergy at 20. The court
based its determination on the fact that the merchandise was
always for a particular ultimate customer and not merely on the
fact that the goods were shipped directly from Chinatex to the
U.S.
In each of the above cases, in determining that the imported
merchandise was clearly destined to the United States the courts
focused on the fact that throughout the entire transaction the
imported merchandise was intended for a specific customer in the
United States and not that the merchandise was clearly destined
to the United States when title transferred to the middleman. In
fact, in considering this question, the time of sale was not
addressed at all. Therefore, we look at the entire transaction
and not just when title passes from the manufacturer to the
middleman in determining whether the goods were clearly destined
to the United States.
In HRL 546658, dated January 30, 1998, Customs indicated
that it is not sufficient merely to establish after the
merchandise was ordered and manufactured, at the time of
shipment, near the end of the transaction, that it will be going
to the U.S. There, we determined that evidence that the boxes of
the imported articles were addressed to the U.S. when delivered
to the carrier was insufficient by itself to establish that the
articles were clearly destined to the U.S.
Here, given the absence of purchase orders, the protestant
has not established that the merchandise was clearly destined for
the United States throughout the entire transaction and that the
imported merchandise was intended for a specific customer in the
United States.
With regard to the requirement that the transaction between
the middleman and the seller be at arm's length, in general,
Customs will consider a sale between unrelated parties to have
been
conducted at "arm's length." Thus, based on your representation
that the middleman will purchase the products in question from
unrelated manufacturers located in Asia, we consider this sale to
have been conducted at "arms's length."
Based upon our review of the transactions and the submitted
documents, we find that the protestant has not overcome the
presumption that the importer's price is the basis of the
transaction value.
HOLDING:
Based on the evidence presented, the sales between Mantex
and Jaiddex (the middleman) for the imported merchandise do not
constitute bona fide sales and the merchandise was not clearly
destined for the United States. Therefore, the sales between
Jaiddex and CAS give rise to an acceptable transaction value.
The imported merchandise was appraised correctly.
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