OT:RR:CTF:VS H318898 AP
Adam Dambrov
Director, Trade Advisory
Flexport Customs LLC
600 Peachtree St NE
Atlanta, GA 30308
RE: Sleepwear; Transaction value; Right to make entry
Dear Mr. Dambrov:
This is in response to your May 11, 2021 ruling request, filed on behalf of JV Apparel Corporation (“JV”), regarding whether the transaction value between the unrelated foreign supplier and JV may be used to appraise the sleepwear imported into the United States and whether JV has the right to enter the merchandise as an importer of record.
You have asked that certain information submitted in connection with this ruling request be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R. § 177.2(b)(7), your request for confidentiality is approved. The information contained within brackets and all attachments to your request for a binding ruling, forwarded to our office, will not be released to the public and will be withheld from the published version of this ruling.
FACTS:
JV is a New York corporation acting as a purchaser and distributor of sleepwear and other wearing apparel in the United States. JV leases office space in New York City and currently has two permanent, full-time employees in the U.S. JV is part of the Kersheh Group of companies, which also includes Canadian companies Jelli Fish Kids Inc. (“Jelli Fish Kids”) and Va-Yola Garments Ltd. (“Va-Yola”). The Director of JV and Jelli Fish Kids is also the President of Va-Yola.
JV acts as the exclusive U.S. distributor of wearing apparel for Jelli Fish Kids and Va-Yola per the Distribution Agreement effective in 2004. JV purchases wearing apparel directly from unrelated third-party suppliers in accordance with the instructions and product specifications provided by its U.S. customers. JV pays Jelli Fish Kids and Va-Yola a distribution rights fee for the exclusive right to sell and distribute their products in the U.S. market. The distribution rights fee paid to JV is calculated as 15 percent of the net sales of products in the U.S. The Distribution Agreement notes that it does not establish a partnership, joint venture, agency relationship or employment, or any other joint or common undertaking between JV, Jelli Fish Kids, and Va-Yola, and that JV assumes all risk of loss and pays the costs of transportation and delivery. According to the Shared Agreement between JV, Jelli Fish Kids and Va-Yola, the two related Canadian companies provide administrative services, selling/warehousing services, and customer support to JV, and JV acts as an independent contractor. JV also sells merchandise through the private labels of its U.S. retailers, such as [ ] and through brands under license, such as [ ] for men’s sleepwear.
The proposed prospective transaction involves JV, the unrelated foreign supplier
[ ], the unrelated foreign factory [ ], a third-party warehouse in California, and the unrelated final U.S. customer [ ] in [ ]. JV will purchase sleepwear and other apparel products from the unrelated foreign supplier who will enter into a separate purchase agreement with the foreign factory. You state that Jelli Fish Kids and Va-Yola will not be parties to the transaction and will not be the owners and purchasers of the merchandise.
The transaction will begin with an order to JV from the U.S. customer. The Customer worksheet will list the style number, sizing, colors and pricing and delivery date, and JV will issue a purchase order to its foreign supplier. The sales order will be negotiated by JV and a purchase order will be issued to the foreign supplier for purchase of finished goods for import to the U.S. The foreign supplier will issue a sales confirmation, which will identify the goods to be furnished and the agreed upon price with JV. The sales confirmation will identify the factory producing the goods.
The terms of sale will be Free on Board (“FOB”) foreign country [ ]. You state that JV will take title to the goods and risk of loss at the foreign port of export. The goods will be shipped to Long Beach, California for customs clearance, and then the goods will be sent to JV’s third-party warehouse in California, where they will be entered into inventory, broken down and later repalletized for delivery to JV’s final U.S. customer according to the customer’s requirements. The “available to sell report” from the warehouse will list the merchandise in inventory. The final U.S. customer will pay JV for the merchandise, and JV will pay the foreign supplier. Payment from the final U.S. customer to JV will be due within 10 days at the end of the month. Payment from JV to the foreign supplier will be due “50% of invoice at sight, 50% -- 60 days after sailing date.” The submitted bank documentary collection order lists JV is a drawee and the foreign supplier as a drawer, and the bank statements from JV show e-deposits from U.S. customers.
ISSUES:
Whether JV has the right to make an entry as an importer of record under the proposed transaction.
Whether the transaction value between JV and the unrelated foreign supplier may be used to appraise the merchandise.
LAW AND ANALYSIS:
Importer of Record
Per 19 U.S.C. § 1484(a)(1), only parties qualified as the “importer of record” may make entry. Those qualified parties are identified as the owner or purchaser of the goods, or a broker appointed on behalf of an owner, purchaser, or consignee under 19 U.S.C.
§ 1484(a)(2)(B). There is no hierarchy of priority among the qualified parties permitted to enter merchandise. The statutory language governing entry of imported merchandise indicates an absence of congressional desire to create a statutory hierarchy or priority list among the persons qualified to make entry. See Nat’l Customs Brokers & Forwarders Ass’n v. United States, 14 CIT 108, 112, 731 F. Supp. 1076, 1080 (1990). The submitted sale confirmation and invoice from the foreign supplier indicate that JV is the purchaser of the merchandise. In its capacity as the purchaser of the merchandise, JV will be a party qualified to be the importer of record pursuant to 19 U.S.C. § 1484(a)(2)(B).
Appraisement of the merchandise
The preferred method of appraising merchandise imported into the United States is transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), codified at 19 U.S.C. § 1401a. Transaction value is the “price actually paid or payable for merchandise when sold for exportation to the United States,” plus five statutorily enumerated additions. See 19 U.S.C. § 1401a(b). Transaction value is an acceptable basis of appraisement only if, inter alia, the buyer and seller are not related, or if related, the circumstances of sale indicate that the relationship does not influence the price actually paid or payable, or the transaction value of the merchandise closely approximates certain “test values,” i.e., previously accepted values of identical or similar merchandise. See 19 U.S.C. § 1401a(b)(2)(B).
To use transaction value, there must be a bona fide sale for exportation to the United States. In VWP of Am., Inc. v. United States, 175 F.3d 1327, 1139 (Fed. Cir. 1999) (citing J.L. Wood v. United States, 62 C.C.P.A. 25, 33, 505 F.2d 1400, 1406 (1974)), the court 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.” Several factors are relied on to determine whether a bona fide sale exists. See Headquarters Ruling Letter (“HQ”) 546067, dated Oct. 31, 1996. No single factor is decisive in determining whether a bona fide sale has occurred. See HQ 548239, dated June 5, 2003. In determining whether property or ownership has been transferred, U.S. Customs and Border Protection (“CBP”) will consider whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. CBP may also examine whether the potential buyer paid for the goods 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 HQ H005222, dated June 13, 2007.
Based on the evidence presented, we find that the transaction at issue is not a consignment that would prohibit the use of the transaction value method to appraise the imported merchandise. The sale terms will be FOB foreign country [ ], which means per the Incoterms that the seller fulfills his obligation to deliver when the goods pass the ship’s rail at the foreign port of shipment. JV, as the purchaser, will assume risk of loss or damage to the goods from that point. You state that related parties Jelli Fish Kids and Va-Yola will not be parties to the transaction and will not be the owners and purchasers of the merchandise. The fact that JV assumes the risk of loss for the imported merchandise when the goods pass the ship’s rail in the foreign country [ ] favors finding that bona fide sales for exportation exist. See HQ H268741, dated Feb. 27, 2018 (If there is no mention regarding the passage of title, as title must pass for there to be a sale, title will pass with the risk of loss based on the Incoterms). JV will issue a purchase order (in accordance with the supplier agreement and the order from the U.S. customer) to the foreign supplier who will subcontract with the foreign factory; the foreign supplier will invoice JV; and JV will remit payment to the supplier based on the invoices. JV will act as the buyer and the unrelated foreign supplier will act as the seller. As indicated on the commercial invoice from the foreign supplier, JV must pay half of the price to the foreign supplier “at sight” and the rest 60 days after sailing and regardless of the time the merchandise will remain in the third-party warehouse in California. As a result, the use of a third-party warehouse in California would not prohibit the use of transaction value to appraise the imported goods.
Further, as JV and the foreign supplier are unrelated, the sale between them is presumed to be at arm’s length. In addition, the documentation shows that the garments will be clearly destined for the U.S. at the time of the sale between the foreign supplier and JV as the bill of lading indicates that the port of loading will be the foreign country
[ ] and the place of delivery and discharge will be Long Beach in California, and the delivery address of the third-party warehouse is in California. The purchase order, sale confirmation, and purchase agreement confirm Long Beach, California as the U.S. port of destination. The wearing apparel will have to comply with U.S. regulatory requirements regarding garments, have JV’s Federal Trade Commission registered identification number (“RN”), and contain labels that meet U.S. requirements for wearing apparel, which further supports that the garments will be clearly destined for the U.S.
Accordingly, as described, the proposed representative transaction between JV and its unrelated foreign supplier, which does not involve related parties Jelli Fish Kids and Va-Yola, constitutes a bona fide sale for exportation to the United States.
HOLDING:
JV, as the purchaser of the merchandise, is a party qualified to be the importer of record pursuant to 19 U.S.C. § 1484(a)(2)(B).
The merchandise may be appraised using the transaction value between JV and the unrelated foreign supplier.
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 filed 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 and Special Programs Branch