Port Director
Attn: SIS Paul Jakobsky
U.S. Customs and Border Protection
6747 Engle Road
Middleburg Heights, OH 44130

RE: Application for Further Review of Protest No. 4101-15-100255; “First Sale” Valuation; Multi-tiered Transaction; 19 U.S.C. § 1401a(b)

Dear Port Director:

This is in response to the Application for Further Review (AFR) of Protest 4101-15-100255 which was forwarded to this office for our review. The protest was filed on April 20, 2015, by Sandler, Travis & Rosenberg, PA, on behalf of their client, Tillsonburg Company (USA), Inc., against your liquidation of several entries of merchandise. The protest challenges the appraised value used for purposes of liquidation and assessment of duties and fees. Four protests were filed in this matter and the importer requested that one protest be designated as the lead protest. Your port selected the above referenced protest as the lead protest and forwarded it to us. The protest was timely filed and the AFR was properly approved. FACTS:

The importer of record, Tillsonburg Company (USA), Inc, (hereinafter, “TUSA”), receives orders from U.S. customers and then orders the merchandise from its related party, Tillsonburg Apparel Limited (hereinafter, “TAL”), which is located in Hong Kong. TAL orders the merchandise from manufacturers located in various countries including China, Vietnam, Cambodia, Indonesia and the Philippines. The subject protest involves entries of merchandise produced in China, Indonesia and the Philippines. According to the importer, the manufacturers are unrelated to TAL and TUSA.

The importer characterizes the transaction as follows: a sale between TUSA and the U.S. customer, a sale between TAL and TUSA, and a sale between the unrelated manufacturers and TAL. The importer based the value of the merchandise at entry on the transaction value of the sale between the unrelated manufacturers and TAL, utilizing the “first sale” concept, as the sale for export to the United States. The port determined the appropriate sale for appraisement purposes was a sale between the U.S. customer and TAL, because the port and the Office of Regulatory Audit believe there was no bona fide sale between TAL and TUSA.

In support of its arguments, the importer submitted documents related to four entries, consisting of four purchase orders from two customers for merchandise produced by four different factories. The documentation submitted includes purchase orders from the U.S. customers, TUSA, and TAL; invoices from the unrelated manufacturers to TAL, from TAL to TUSA, and from TUSA to its U.S. customers; proof of payment from the U.S. customers to TUSA, from TUSA to TAL, and from TAL to the unrelated manufacturers; and shipping documents. The Incoterms on the manufacturers’ purchase orders and invoices show that the manufacturers pass the risk of loss to TAL based on FOB (Free on Board), i.e., when the goods are loaded on board a vessel for shipment. TAL passes the risk of loss to TUSA based on CIF (cost, insurance, freight), i.e., when the goods are loaded on board a vessel for shipment. Finally, TUSA passes the risk of loss to its U.S. customers based on DDP (Delivered, Duty Paid), i.e., when the customer receives the goods in the U.S. The bills of lading or air waybills reflect that TUSA is the consignee.

In the memorandum submitted in support of the protest, the process of the transactions was set forth. In that explanation, it is stated that “TAL determines which manufacturer’s factory will make the subject merchandise and places an order with them.” However, the purchase orders from one of the U.S. customers, which predate the purchase orders from TAL to manufacturers, clearly specify the manufacturers who made the imported merchandise for that U.S. customer.

We also received a copy of the terms and conditions which applied for the purchases between TAL and its suppliers, and between TUSA and TAL. In each case, the terms and conditions did not reference when title to the goods passed. The only terms of sale presented are the Incoterms on the purchase orders and invoices.


Whether the sales between the unrelated manufacturers and TAL are bona fide sales which may be used for first sale appraisement of the imported merchandise.


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).

TUSA believes the imported merchandise may be appraised under the “first sale” transaction value method of appraisement. E. C. McAfee Company v. United States, 842 F.2d 314 (Fed. Cir. 1988); 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); and Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18 (1993), are cited as authority for the use of the “first sale” methodology. In Nissho Iwai, 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 a sale for exportation to the United States. The court held that the price paid by the middleman 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 non-market influences, and involving goods clearly destined for the United States. In accordance with the Nissho Iwai decision and our own precedent, we presume that transaction value is based on the price paid for the merchandise in the last sale for export to the United States. In further keeping with the court’s holding, we note that an importer may request appraisement based on the price paid by a middleman to a 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, the Customs Service (now Customs and Border Protection (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 payments, contracts, and any additional documents (e.g. correspon- dence) 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 issue is whether there is a bona fide sale between the unrelated manufacturers and TAL. As the manufacturers are not related to TAL, there is a presumption that transactions between these parties are at arm’s length. Based on the documentation presented to support the claim, the manufacturers were aware that the merchandise was destined for the U.S. As the manufacturers shipped the merchandise directly to the U.S., these transactions meet the “clearly destined” requirement for transaction value. The remaining issue is whether the transaction was a bona fide sale, and that requires determining whether TAL was an independent buyer/seller or was acting as an agent for either the U.S. buyers or the unrelated apparel manufacturers.

In Rosenthal-Netter, Inc. v. United States, 12 CIT 77, 679 F. Supp. 21 (1988), aff’d 861 F.2d 261 (1988), the Court of International Trade articulated various factors that should be considered in deciding whether a bona fide agency relationship exists. The court stated, at 12 CIT at 79: These factors include: the right of the principal to control the agent’s conduct; the transaction documents; whether the importer could have purchased directly from the manufacturers without employing an agent; whether the intermediary was operating an independent business, primarily for its own benefit; and, the existence of a buying agency agreement. Although no single factor is determinative, the primary consideration is the “right of the principal to control the agent’s conduct with respect to the matters entrusted to him.” [Citations omitted.]

Citing to the Restatement (Second) of Agency § 14K comment a(2) (1958), the court pointed out that “a characteristic of a seller is ‘[that] he acts in his own name and receives the title to the property which he thereafter is to transfer.’” While a seller must have title to merchandise in order to sell it, as you cannot sell what you do not own; an agent may obtain title to merchandise without it negating the agency. See Rosenthal-Netter, Inc., at 79 F. Supp. 26, Footnote 6, citing J.C. Penney Purchasing Corp. v. United States, 80 Cust. Ct. 84, C.D. 4741, 451 F. Supp. 973 (1978) which relied on Mitsui & Co. (U.S.A.), Inc. v. United States, 66 Cust. Ct. 553, 556, R.D. 11740 (1971). However, with regard to bearing the risk of loss, the court in Pier I Imports, Inc. v. United States, 13 CIT 161, 168; 708 F. Supp. 351, 357 (1989), quoting from Rosenthal-Netter at 83, stated: “’It is uncharacteristic of an agency relationship to allow the intermediary to bear the risk for damaged, lost, or defective merchandise.’” In this case, based on the Incoterms, the factory relinquishes the risk of loss to TAL based on FOB at the port of export. Counsel submitted evidence that TAL and TUSA carried cargo insurance from August 1, 2013 to July 31, 2014. While we note some entries at issue in the protest entered the U.S. outside this time frame, the majority of the entries at issue entered during this time frame. The cargo insurance serves as evidence that TAL and TUSA assumed the risk of loss for the merchandise. We note that unless otherwise indicated by the parties, Incoterms do not indicate when title to goods passes from one party to another. See H272113, dated March 9, 2016. While there is no mention in the documentation regarding the passage of title, as title must pass for there to be a sale, it is apparent the protestant asserts that title passes with the risk of loss based on the Incoterms.

As the goods are clearly destined for the U.S.; there is the presumption that TAL and the factories operate at arm’s length as they are unrelated; and, TAL assumed the risk of loss and title, presuming title passed with the risk of loss in this case; we agree with the protestant that appraisement is allowable based upon the sale from the unrelated factories to TAL.


The protest should be allowed. The goods at issue should be appraised based upon the sales between the unrelated factories and TAL.

In accordance with the Protest/Petition Processing Handbook (CIS 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 this 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 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.


Myles B. Harmon, Director
Commercial and Trade Facilitation Division