OT:RR:CTF:VS H322092 AP
Center Director
Apparel, Footwear and Textiles CEE
U.S. Customs and Border Protection
555 Battery Street, Room 401
San Francisco, CA 94111
Attn.: Grace Carmichael, CBP Senior Import Specialist
RE: Application for Further Review of Protest No. 2704-21-156590; Men’s Jackets; Valuation under 19 U.S.C. § 1401a
Dear Center Director:
This is in response to an Application for Further Review (“AFR”) of Protest No. 2704-21-156590, timely filed on behalf of I5 Inc. (“importer” and “buyer”), concerning the appraisement of certain men’s jackets under 19 U.S.C. § 1401a.
FACTS:
On January 6, 2021, the importer/buyer entered 220 dozen men’s jackets under subheading 6101.30.2020, Harmonized Tariff Schedule of the United States Annotated (“HTSUSA”) purchased from manufacturer Quanzhou Zhongruan Trading Co. Ltd. (“Quanzhou”) in China. The declared value was $7,642.
A November 4, 2019 purchase order from the importer/buyer to the “vendor Mr. Rao,” which allegedly ties to the above entry, lists 6000 pieces of men’s jackets style no. 4394MX with a “FOB price” $2.90 each for a total of $17,400. The merchandise is described as “fleece w/dyed sherpa line.” The purchase order instructs to ship the merchandise to the importer.
A November 16, 2020 commercial invoice to the importer/buyer that allegedly ties to the above entry indicates that Fujian Haoxin Scm Co., Ltd. (“Fujian”) in China is the vendor; the port of loading is Xiamen, China; the final port of destination is Los Angeles; the terms of the sale are “FOB” Xiamen China; and a total of 2635 men’s jackets style no. 4394MX are priced at $7,641.50 ($2.90 each).
The bank wire transfer statement from the importer to the beneficiary “Quanzhou Zhongruan Trading Co. Ltd. – Mr. Rao” reveals that on February 4, 2021, the importer wired $15,000 to Quanzhou/Mr. Rao as a “repetitive wire transfer – international.”
U.S. Customs and Border Protection (“CBP”) appraised the current shipment at $41,864 ($190.29 per dozen and 548% undervalued). The February 26, 2021 Notice of Action (CBP Form 29) notified the importer that, “No argument was received for the proposed CF29 issued on 02/04/2021 with a due date of 02/24/2021. This entry has been value advanced out to the aggregate 2020 value for same class or kind of merchandise from China of $190.29 per dozen. A future invoice for approximately $12,377.83 for additional duties will be forthcoming.”
On July 14, 2021, CBP issued Informed Compliance Notices notifying the importer and its customs broker that the submitted invoice failed to provide a detailed description of the merchandise, the country of origin, and the entity performing the origin-conferring operations as required under 19 C.F.R. §§ 141.86(3) and (10) and 19 C.F.R. § 102.23(a), and that filing of inaccurate information was a material false statement or omission, which could result in 19 U.S.C. §§ 1641 and 1592 penalties.
ISSUE:
What is the proper method of appraisement for the subject men’s jackets?
LAW AND ANALYSIS:
We note that the matter protested is protestable under 19 U.S.C. § 1514(a)(1) as a decision on the value of merchandise. The protest was timely filed on June 25, 2021, within 180 days of liquidation for the entry on March 5, 2021. See Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, § 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). Further review of this protest is properly accorded to the importer pursuant to 19 C.F.R. § 174.24(b) because the issues protested involve questions of law or fact, which have not been ruled upon.
Merchandise imported into the United States is appraised for customs purposes 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 amounts for certain statutorily enumerated additions to the extent not otherwise included in the price actually paid or payable. See 19 U.S.C. § 1401a(b)(1).
Title 19, U.S.C. § 1401a(b)(1) states, in relevant part:
… If sufficient information is not available, for any reason, with respect to any amount referred to in the preceding sentence [price actually paid or payable plus amounts for the five statutory additions], the transaction value of the imported merchandise concerned shall be treated, for purposes of this section, as one that cannot be determined.
Title 19 U.S.C. § 1401a(h)(5)(A)(i) states:
The term “sufficient information”, when required under this section for determining — (A) any amount— (i) added under subsection (b)(1) to the price actually paid or payable … means information that establishes the accuracy of such amount, difference, or adjustment.
In order 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 and no single factor is decisive. See Headquarters Ruling Letter (“HQ”) 546067, dated Oct. 31, 1996; HQ 548239, dated June 5, 2003. CBP considers whether the purported buyer assumed the risk of loss for, and acquired title to, the imported merchandise. CBP also considers whether the buyer paid for the goods, and whether, in general, the roles of the parties and the circumstances of the transaction indicate that the parties are functioning as buyer and seller. See HQ H005222, dated June 13, 2007. Evidence to establish that consideration has passed includes payment by check, bank transfer, or payment by any other commercially acceptable means. Payment must be made for the imported merchandise at issue. A general transfer of money from one corporate entity to another, which cannot be linked to a specific import transaction, does not demonstrate passage of consideration. See HQ 545705, dated Jan. 27, 1995.
The invoice from the seller Fujian to the importer indicates that the sale terms between the parties were FOB port of shipment in China. There is no mention regarding passage of title and, as title must pass for there to be a sale, title will pass with the risk of loss based on the Incoterms. See HQ H268741, dated Feb. 27, 2018. Thus, title and risk of loss transferred from the Chinese seller Fujian to the importer at the port of loading when the merchandise passed the ships rail in Xiamen, China. In order to have a transfer of ownership, financial consideration must be offered by the buyer to the seller, and the buyer’s payment must be linked to the imported merchandise. The February 4, 2021 wire transfer of $15,000 from the importer/buyer to the Chinese manufacturer “Quanzhou Zhongruan Trading Co. Ltd. – Mr. Rao,” cannot be linked to the men’s jackets imported on January 6, 2021. Further, we have no information regarding the relationship between the manufacturer Quanzhou, the seller Fujian and Mr. Rao (i.e., whether they are related parties and the transaction between them was at arm’s length). The Apparel, Footwear and Textiles Center of Excellence and Expertise (“CEE”) was unable to obtain sufficient proof of payment from the importer. Consequently, the transaction value method of appraisement would be inappropriate. Further, the CEE was correct in not using transaction value to appraise the imported merchandise because there was insufficient information to verify the accuracy of the invoiced values pursuant to 19 U.S.C. § 1401a(b)(1) and (h)(5)(A)(i).
When imported merchandise cannot be appraised on the basis of transaction value, it is appraised in accordance with the remaining methods of valuation, applied in hierarchical order. See 19 U.S.C. § 1401a(a)(1). The second method of appraisement is the transaction value of identical or similar merchandise. See 19 U.S.C. § 1401a(c). The transaction value of identical or similar merchandise refers to a previously accepted transaction value of identical or similar merchandise that was exported at or about the same time as the merchandise being valued.
Title19 U.S.C. §1401a(h)(2) defines “identical” merchandise as:
(A) merchandise that is identical in all respects to, and was produced in the same country and by the same person as, the merchandise being appraised; or
(B) if merchandise meeting the requirements under subparagraph (A) cannot be found (or for purposes of applying subsection (b)(2)(B)(i), regardless of whether merchandise meeting such requirements can be found), merchandise that is identical in all respects to, and was produced in the same country as, but not produced by the same person as, the merchandise being appraised ….
Title 19 U.S.C. §1401a(h)(4) defines “similar” merchandise as:
(A) merchandise that — (i) was produced in the same country and by the same person as the merchandise being appraised, (ii) is like the merchandise being appraised in characteristics and component material, and (iii) is commercially interchangeable with the merchandise being appraised; or
(B) if merchandise meeting the requirements under subparagraph (A) cannot be found (or for purposes of applying subsection (b)(2)(B)(i), regardless of whether merchandise meeting such requirements can be found), merchandise that —
(i) was produced in the same country as, but not produced by the same person as, the merchandise being appraised, and (ii) meets the requirement set forth in subparagraph (A)(ii) and (iii) ….
Title 19, C.F.R. § 152.107(b) states, in relevant part:
The requirement that identical merchandise, or similar merchandise, should be exported at or about the same time of exportation as the merchandise being appraised may be interpreted flexibly.
It is not possible to appraise the merchandise on the basis of the transaction value of identical or similar merchandise under 19 U.S.C. § 1401a(c) because the CEE was unable to ensure that other entries in the same subheading and from the same country of origin were of the same component materials and characteristics as, or were commercially interchangeable with, the goods being appraised.
Under the deductive value method, merchandise is appraised on the basis of the price at which it is sold in the U.S. in its condition as imported and in the greatest aggregate quantity either at or about the time of importation, on or before the close of the 90th day of importation. This price is subject to certain enumerated deductions. See 19 U.S.C. § 1401a(d). Based on the record, the CEE was not given any information on the U.S. sales price of the merchandise. Consequently, the deductive value method was inapplicable.
Under the computed value method, merchandise is appraised on the basis of the material and the processing costs incurred in the production of imported merchandise, plus an amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind, and the value of any assists and packing costs. See 19 U.S.C. § 1401a(e). No information on these various elements was provided, making the computed value method also unavailable as an appraisement method.
When the value of imported merchandise cannot be determined under the methods set forth in 19 U.S.C. §§ 1401a(b)-(e), it may be appraised on the basis of a value derived from one of those methods, reasonably adjusted to the extent necessary to arrive at a value. This is known as the “fallback” valuation method under 19 U.S.C. § 1401a(f). Certain limitations exist under this method. For example, merchandise may not be appraised on the basis of the price in the domestic market of the country of export, the selling price in the United States of merchandise produced in the U.S., minimum values, or arbitrary or fictitious values.
Under Section 500 of the Tariff Act of 1930, as amended, which constitutes CBP’s general appraisement authority, codified in 19 U.S.C. § 1500(a), the appraising officer may:
[F]ix the final appraisement of merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, other document to the contrary notwithstanding[.]
In this regard, the Statement of Administrative Action (“SAA”), H.R. Doc. No. 153, 96 Cong., 1st Sess. Pt 2, reprinted in Department of Treasury, Customs Valuation under the Trade Agreements Act of 1979 (Oct. 1981), at 67, which forms part of the legislative history of the TAA, provides, in relevant part:
Section 500 is the general authority for Customs to appraise merchandise. It is not a separate basis of valuation and cannot be used as such. Section 500 allows Customs to consider the best evidence available in appraising merchandise. It allows Customs to consider the contract between the buyer and seller, if available, when the information contained in the invoice is either deficient or is known to contain inaccurate figures or calculations … Section 500 authorize [sic] the appraising officer to weigh the nature of the evidence before him in appraising the imported merchandise. This could be the invoice, the contract between the parties, or even the recordkeeping of either of the parties to the contract … In those transactions where no accurate invoice or other documentation is available, and the importer is unable, or refuses, to provide such information, then reasonable ways and means will be used to determine the appropriate value, using whatever evidence is available, again within the constraints of section 402.
Title 19, C.F.R. § 152.107 provides:
Reasonable adjustments. If the value of imported merchandise cannot be determined or otherwise used for the purposes of this subpart, the imported merchandise will be appraised on the basis of a value derived from the methods set forth in §§ 152.103 through 152.106, reasonably adjusted to the extent necessary to arrive at a value. Only information available in the United States will be used.
Identical merchandise or similar merchandise. The requirement that identical merchandise, or similar merchandise, should be exported at or about the same time of exportation as the merchandise being appraised may be interpreted flexibly. Identical merchandise in any country other than the country of exportation or production of the merchandise being appraised may be the basis for customs valuation. Customs valuation of identical merchandise, or similar merchandise, already determined on the basis of deductive value or computed value may be used.
In HQ H119455, dated Feb. 16, 2011, the port was unable to rely on the documents presented by the importer to determine the transaction value of the imported merchandise, and did not have sufficient information to apply a method of appraisement other than the fallback method. The port determined the value under 19 U.S.C. § 1401a(f) on the basis of reasonable adjustments to the transaction value of similar merchandise as provided for in 19 U.S.C.
§ 1401a(c). Specifically, the port used the available data on merchandise classified in the same subheading and imported from the same countries at or about the same time as the merchandise being appraised. The figures arrived at accounted for differences in the component materials, characteristics, and commercial interchangeability of the goods that could not otherwise be ascertained. These facts indicated that the values derived by the port for the merchandise being appraised were neither arbitrary nor capricious.
Likewise, in the instant matter, there is insufficient information to enable CBP to use transaction value to appraise the merchandise. As a result, the CEE used the available data on merchandise classified in the same subheading and imported from the same country at or about the same time as the merchandise being appraised. Specifically, the CEE used the 2020 aggregate value ($190.29 per dozen, which is $15.86 per piece/each) of men’s jackets of subheading 6101.30.2020, HTSUSA imported from China. The invoice value listed these jackets as 2635 pieces/$2.90 each, which is $34.80 per dozen. The declared total entered value of $7,642 ($34.80 per dozen) was value advanced to reflect the total entered value to be $41,864 (approximately 548% undervalued per the aggregate value of $190.29 per dozen).
U.S. Customs Law requires that merchandise imported into the United States be appraised. See 19 U.S.C. § 1401a. Based on the information in the record, the methodology used by the CEE constituted reasonable adjustments, pursuant to 19 U.S.C. § 1401a(f), of the transaction values of similar merchandise as provided for under 19 U.S.C. § 1401a(c). This was consistent with CBP’s authority under 19 U.S.C. §§ 1401a(f) and 1500.
HOLDING:
Protest No. 2704-21-156590 should be DENIED. The subject men’s jackets should be appraised under the fallback method set forth in 19 U.S.C § 1401a(f) based on the 2020 aggregate value of similar merchandise classified in the same subheading and imported from the same country at or about the same time as the merchandise being appraised.
You are instructed to notify the importer, through counsel, of this decision no later than 60 days from the date of this decision. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to this notification. Sixty days from the date of the decision, the Office of Trade, Regulations and Rulings will make the decision available to CBP personnel and the public on the Customs Rulings Online Search System (“CROSS”) at https://rulings.cbp.gov/, or other methods of public distribution.
Sincerely,
for Yuliya A. Gulis, Acting Director
Commercial and Trade Facilitation Division