VAL CO:R:C:V 545254 LR
District Director of Customs
909 First Avenue
Seattle, WA 98174
RE: Request for Reconsideration of IA 3/91 (HRL 544714); sale
for exportation; clearly destined for the United States
This is in response to your memorandum dated February 12,
1993, forwarding a request for reconsideration of Internal Advice
3/91 (HRL 544714), dated March 3, 1992. The request was
submitted by counsel on behalf of Travelway Group International,
Inc. ("Travelway"). We regret the delay in responding.
On October 3, 1990, Travelway, a Canadian corporation, filed
an entry for 7,862 duffle bags at Blaine, Washington. The
entered value was $41,983.08, the price Travelway paid the
foreign seller. In HRL 544714, Customs determined that based on
the information presented, the sale between Travelway and the
foreign seller was not a sale for exportation to the United
States and ruled that the transaction value of the merchandise
should be based on the transaction between Travelway and Oakley
Inc. ("Oakley"), the ultimate consignee in the U.S. The
underlying facts will not be repeated here. Relevant excerpts
from the March 3, 1992 decision follow:
In the present case there are two sales that we must
examine to determine whether there was a sale for
exportation to the U.S. From the documentation presented at
the time of entry, it appears that the first sale was
between China National Light Industrial Products ("China
National") and Travelway, although as previously discussed
Gem Fastival Limited appears to have played some type of
role in this transaction. The only "commercial invoice"
available for the China National/Travelway sale is the
Textile Export License/Commercial Invoice. This document,
dated September 10, 1990, indicates that the merchandise was
shipped "From Guandong China to Inglewood, California via
Hong Kong by Sea in Sep., 1990".
All of the other documents in the file indicate that
the merchandise was shipped from Hong Kong on or about July
24, 1990. Moreover, based on the information contained in
the shipping documents and the information the NIS obtained
though ACS and AMS, we must conclude that the merchandise
went from Hong Kong to Canada in July of 1990, not to the
U.S. Therefore, the sale between China National and/or Gem
Fastival Ltd. and Travelway was not a sale for exportation
to the U.S.
The second sale of the merchandise occurred between
Travelway and Oakley. It appears from the documents in the
file that Travelway exported the goods from Canada to Oakley
in California on or about October 3, 1990....
... [it] appears that the goods were sold by Travelway
to Oakley for exportation to the U.S. Therefore, this sale
can serve as the basis of transaction value.
Your office has orally advised that the above decision has
not yet been implemented and that the entry in question has not
been liquidated. In addition, we are advised that no action is
being taken with respect to a pre-penalty notice issued to
Travelway in connection with the entry of the duffle bags in
question pending our decision on the reconsideration.
In its request for reconsideration, counsel has presented
additional information clarifying the circumstances surrounding
the importation in question. We are advised that after Oakley
placed its order with Travelway for 7,862 nylon duffle bags
bearing the Oakley logo, Travelway placed an order with Gem
Fastival ("Gem"), a Hong Kong company, who arranged for their
manufacture in China. Counsel indicates that Travelway is not
related to Gem and that the price was negotiated at arm's length.
The file contains Gem's Invoice No. 90/132/133, to Travelway,
dated July 21, 1990, for 7,862 duffle bags, with mark "OAK" USA,
at a price of $41,983.08. Counsel indicates that rights to the
Oakley logo are exclusively held by Oakley.
Counsel does not dispute the finding in the original
decision that the duffle bags went from Hong Kong to Canada
before entering the United States. Nonetheless, it argues that
there was a sale for exportation to the United States because the
shipment was never entered for consumption in Canada, and no
contingency of diversion existed with regard to an alternative
disposition of the goods. In this regard, counsel points to the
fact that the Oakley bags were bonded goods for which Travelway
had no license or intent to re-sell, and were in-bond at all
times from the time the ship docked in Vancouver until the
merchandise was entered at Blaine Washington. It notes that
Travelway entered a contract with the seller, Gem, based solely
on the Oakley order to Travelway and that there was no other
buyer to whom Travelway would have, or could have, sold the
According to counsel, due to the forwarder's logistical
setup, which concentrated Pacific Ocean operations in Vancouver,
rather than a West Coast U.S. port, the bags were shipped in-bond
to Vancouver, Canada before arriving in Blaine, Washington.
According to counsel, the Oakley bags were in-bond from the time
the ship docked in Vancouver until the merchandise was entered at
Blaine, Washington. Counsel states that in Canada, the only
manipulation of the goods was stripping out the merchandise which
was rejected by Oakley and returning it to Hong Kong. (Oakley
allegedly rejected one item in the shipment based on a pre-
production sample after the container ship was en route.)
Counsel has submitted copies of shipping and in-bond documents in
support of its claim that the involved merchandise was clearly
destined for Oakley in the U.S. throughout the transportation
cycle that ended with the subject entry. Included are the in-
bond documents filed by Schenker of Canada (freight forwarder),
including the Canada Export Declaration used to close out the
Canada in-bond requirements. Counsel indicates that while in
Canada, the merchandise was retained in Schenker's bonded
warehouse in Burnaby, British Columbia.
Counsel claims that based on the decisions in Nissho Iwai
American Corp. v. United States, No. 92-1239, Slip Op. (Fed Cir.
Dec. 28, 1992) and E.C. McAfee Co. v. United States, 842 F.2d
314; 6 Fed.Cir.(T) 92 (Fed. Cir. 1988), the proper basis of
valuation of the involved entry is under transaction value,
represented by the amount paid or payable by Travelway to the
manufacturer ($41,983.08), since this is the actual sale for
exportation to the United States. Your office indicates that
reconsideration may be warranted based on recent court decisions.
Whether transaction value for the imported goods should be
based on the sale between Travelway and the Hong Kong seller, or
on the sale between Travelway and Oakley.
LAW AND ANALYSIS:
The method of appraisement is transaction value pursuant to
section 402(b) of the Tariff Act of 1930, as amended by the Trade
Agreement Act of 1979 (TAA; 19 U.S.C. 1401a). Section 402(b)(1)
of the TAA provides in pertinent part, that the transaction value
of imported merchandise is the "price actually paid or payable
for the merchandise when sold for exportation to the United
States" plus enumerated additions. (emphasis added)
The "price actually paid or payable" is defined in section
402(b)(4)(A) of the TAA as "the total payment (whether direct or
indirect, and exclusive of any costs, charges, or expenses
incurred for transportation, insurance, and related services
incident to the international shipment of the merchandise...)
made, or to be made, for the imported merchandise by the buyer
to, or for the benefit of, the seller."
Several court decisions have addressed the issue of
determining transaction value in a three-tiered distribution
arrangement; specifically, whether a sale from a foreign seller
to a foreign distributer was a proper transaction value. In E.C.
McAfee, supra the goods at issue were made-to-measure clothing
for individual United States customers. The customers placed an
order with a middleman, a Hong Kong distributor. On receipt of
an order, the middleman contracted with tailors in Hong Kong to
produce the clothing and ultimately arranged for shipment of the
goods to his customers in the United States. The middleman was
the importer of record. The court found that the goods sold by
the manufacturers to the middleman were for exportation to the
United States. In reaching this conclusion the court stated:
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 distributor and tailors, are "for exportation to
the United States." Apart from this factor, there is no
dispute that the merchandise was being made for export to
the United States. 842 F.2d at 319, 6 Fed. Cir. (T) at 98.
The court further ruled that "if the transaction between the
manufacturer and the middleman falls within the statutory
provision for valuation, the manufacturer's price, rather than
the price from the middleman to his customer, is used for
appraisal." 842 F.2d at 318; 6 Fed. Cir. (T) at 97.
In Nissho Iwai, supra, and Synergy Sport International, Ltd.
v. United States, No. 93-5, Slip Op. (Ct. Int'l Trade Jan. 12,
1993), the U.S. Court of Appeals for the Federal Circuit and the
Court of International Trade, respectively, again addressed the
proper value of merchandise imported pursuant to a three-tiered
distribution arrangement involving a foreign manufacturer, a
middleman and a U.S. purchaser. In each case the issue was which
sale (the sale from the foreign manufacturer to the middleman or
the sale from the middleman to the U.S. purchaser) is the sale
for exportation for purposes of establishing transaction value.
In both cases, the middleman was the importer of record.
Applying the McAfee standard, in each case the court held that
transaction value for the imported merchandise should be based on
the price that the middleman/importer paid to the foreign
manufacturer. Each court further held that in such three-tiered
distribution arrangement, if the sale from the foreign
manufacturer to the middleman is "at arm's length" and involves
goods "clearly destined for the United States," then transaction
value is based on that sale.
Based on the above decisions, counsel for Travelway requests
reconsideration of HRL 544714 which determined that the price
Oakley paid to Travelway was the proper transaction value. It
claims that the price Travelway paid Gem should control instead.
In order to accept Gem's price as the basis of transaction
value, the importer must meet the standard set forth in Nissho
Iwai. Counsel indicates that Travelway is not related to Gem and
that the sale is "at arm's length". There is no evidence in the
file to suggest otherwise. Therefore, it appears that the first
requirement is met. We also conclude that the second requirement
is met, i.e., that the duffle bags were clearly destined for the
United States, even though they were shipped through Canada. The
evidence shows that Travelway is a foreign company who received
an order from a U.S. customer (Oakley) for duffle bags, arranged
for their production with a Hong Kong company (Gem), and acted as
the importer of record. The duffle bags were special ordered by
a specific U.S. purchaser, bore its logo and were ultimately sent
to that purchaser. Like the custom-made clothing in McAfee, the
duffle bags were destined only for the U.S. purchaser. Even
though the bags were initially shipped to Canada, the evidence
indicates that they were shipped in-bond and there is no
indication there was any planned or actual use of the bags in
The submitted documents support the conclusion that the
duffle bags were clearly destined for exportation to the United
States. Oakley's Purchase Order Nos. 2730 and 2638, issued to
Travelway, dated April 12, 1990 and March 5, 1990, respectively,
were for 7,862 small duffle bags with the Oakley logo. Gem
Invoice No. 90/132/133, dated July 21, 1990, issued to Travelway
was for 7,862 duffle bags with the marks "OAK" USA. Travelway
Invoice Nos. 138230/138231, dated October 26, 1990, were issued
to Oakley for the 7,862 duffle bags. These documents, coupled
with the Canadian in-bond documents, show that at the time of the
Gem/Travelway sale, the duffle bags were clearly destined for
Oakley in the United States. (Although the file also contains a
copy of a Chinese textile export license for the subject duffle
bags, the date of issuance was September 10, 1990, after the bags
were shipped to Canada and after the Gem/Travelway sale.
Therefore, it is not probative evidence that the Gem/Travelway
sale was a sale for exportation to the U.S.).
We also take note of the fact that in the present case
Travelway was the importer of record and that in three-tiered
distribution arrangements, Customs generally presumes that the
price paid by the importer is the basis of transaction value.
See HRL 545262, March 11, 1994.
Based on a review of the evidence along with the additional
clarifying information, we find that the duffle bags were clearly
destined for the U.S. at the time of the Gem/Travelway sale, as
provided in Nissho Iwai. Therefore, such sale was a sale for
exportation to the United States.
Based on the additional facts presented, we find that the
sale for exportation to the U.S. for purposes of transaction
value occurred between Gem and Travelway. The "price actually
paid or payable" for the goods is the price Travelway paid to
The Office of Regulations and Rulings will take steps to
make this decision available to Customs personnel via the Customs
Rulings Module in ACS and the public via the Diskette
Subscription Service, Freedom of Information Act and other public
access channels 60 days from the date of this decision.
John Durant, Director
Commercial Rulings Division