VAL-2 OT:RR:CTF:VS H017956 CMR
Port Director
U.S. Customs and Border Protection
1 East Bay Street
Savannah, GA 31401
RE: Application for Further Review of Protest 1703-07-100341; Valuation; First Sale
Dear Port Director:
This decision is in response to an application for further review of protest 1703-07-100341, filed by Neville Peterson LLP, on behalf of their client, Target Stores (hereinafter Target), against your decision to appraise twelve entries of various footwear based on the transaction value of the last sale in a multi-tiered sales transaction. The protest was timely filed and the application for further review was properly approved.
FACTS:
The entries at issue all involve footwear produced in China and subject to multi-tiered transactions. The importer, Target, purchases footwear from a Hong Kong company, Kenth Limited (hereinafter Kenth). Kenth does not manufacture the footwear, but places orders with other companies to have the footwear made in accordance with Target’s specifications. In the case of the entries at issue, three different companies (sellers) sold footwear to Kenth for export to Target. Kenth provides these companies with Target’s specifications for the footwear including Target’s purchase order number, the style numbers and names Target assigns to the footwear it has ordered, and the quantity ordered. However, the sellers do not actually make the merchandise. They contract with factories in China to produce the actual footwear. As part of this multi-tiered transaction, Kenneth Cole Productions, Inc., a party related to Kenth, provides assistance in designing and sourcing the footwear for which it is paid a commission. The design work is performed in the United States.
The sellers with which Kenth places orders for the footwear know that the footwear is being produced to be shipped to Target in the United States. The information provided to them by Kenth clearly indicates the footwear is destined for export to the United States. To substantiate the claim that the transaction value should be based on the sale between the sellers and Kenth, counsel for Target submitted, for each entry:
(1) The relevant entry summary,
(2) Kenth’s invoice to Target,
(3) Target’s purchase order to Kenth,
(4) The seller’s invoice to Kenth which references the relevant Target purchase order, style names and numbers, and the quantity indicated in the referenced Target purchase order,
(5) Proof of payment by Kenth to the seller for the footwear.
The protestant asserts that the transaction value of the footwear is the price actually paid or payable based on the sale between the sellers and Kenth (the first sale). To this first sale price, protestant believes additions for royalties for the use of a patent under a Technology and License Agreement with a third party should be added, but notes that only certain entries under this protest are subject to this licensing agreement. In addition, an assist cost, i.e., the value of boxes provided by Kenth to the sellers is also added.
ISSUE:
Is the sale between the sellers and the middleman, Kenth, of the footwear purchased from Kenth by Target a sale for exportation to the United States for purposes of determining the transaction value of the footwear under 19 U.S.C. § 1401a(b)?
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). For the purpose of this protest we have assumed that transaction value is the appropriate basis of appraisement.
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 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 nonmarket influences, and involving goods clearly destined for the United States. See also, Synergy Sport International, Ltd. v. United States (Ct. of Int’l Trade, 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, 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 payment, contracts, and any additional documents (e.g. corre- spondence) 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 protestant has submitted for each entry at issue documents to support that a sale of merchandise occurs between the sellers and the middleman. The invoices from the sellers identify Kenth as the party to whom the footwear was sold and identify Target as the party to receive the footwear. Kenth’s invoices to Target identify Target as the buyer, identify the actual manufacturer, and identify Target’s purchase order numbers. The sellers’ invoices to Kenth identify the actual manufacturer and identify Kenth as the buyer and Target as the recipient of the shipment. The sellers’ invoices also identify Target’s purchase order numbers and information identifying the footwear so that the Target purchase order and identifying information for the footwear subject to that purchase order appears on both the sellers’ invoices and Kenth’s invoices to Target. Finally, proof of payment from Kenth to the sellers which includes the sellers’ invoice numbers in the payment details has been submitted.
Kenth and the sellers of the footwear are not related. In T.D. 96-87, we stated that “[i]n general, Customs will consider a sale between unrelated parties to have been conducted at ‘arm’s length.’” However, we must determine if indeed a “sale” has occurred. In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the Court of Appeals for the Federal Circuit 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)). Based on the submitted information, including the sellers’ invoices which indicate that the merchandise has been sold to Kenth and the proofs of payment by Kenth to the sellers for the merchandise, we are satisfied that the sales between the sellers and Kenth were at arm’s length, were bona fide sales, and were sales for export to the United States.
Protestant counsel’s submitted a corrected chart of the entries with sales price and additions to this office. We are including a copy for the port with this decision.
HOLDING:
The protest is allowed. In accordance with the Protest/Petition Processing Handbook (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 the 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.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division