NOV 19 2007
OT:RR:CTF:VS 548670 LR
U.S. Customs and Border Protection
ATTN: Chief, Liquidation and Protest Branch
JFK International Airport Area, Building 77
Jamaica, New York 11430
RE: Application for Further Review of Protest 47001-04-100877; multi-tiered transactions
Dear Sir or Madam:
This is in reference to the Application for Further Review of Protest No. 47001-04-100877 timely filed by Comei Compagnla Mercantile Internazionale S.p.a. ("Comei") on October 7, 2004, contesting the appraised value of certain merchandise. Comei, by its counsel, made additional submissions on September 15, 2005, October 28, 2005, and October 19, 2007.
The merchandise at issue is men's and women's wearing apparel imported by Comei. Comei entered the merchandise pursuant to four entries in August and September of 2003 and declared the value based on the price paid by Comei's U.S. customers. The garments were appraised and liquidated by U.S. Customs and Border Protection (CBP) on this basis between July 9, 2004 and September 3, 2004. Comei contends that the correct value for the merchandise is the price Comei paid to the manufacturer, China XinXing Shanghai Import and Export Corporation ("XinXing"), plus the value of design assists it provided to XinXing.
Prior to importation, Comei designed and made sample garments at its facility in Italy. Comei then sent the sample garments to XinXing. (XinXing and Comei are said to be unrelated parties). XinXing made additional sample garments and shipped them to Lily Kate Corporation (Lily Kate) in the United States. Lily Kate served as Comei's sales agent in the United States.
Lily Kate took orders from various U.S. customers based on the samples and sent the orders to Comei. Comei used these orders to complete a single consolidated purchase order to XinXing, dated March 21, 2003. The purchase order listed the desired garments by style numbers and sizes and the price for each garment. XinXing produced the garments specified in the consolidated purchase order and allegedly sold them to Comei "FOB Shanghai, China." The garments were shipped directly from XinXing to the United States. After importation, the garments were placed in a warehouse in Ridgefield, New Jersey, operated by Bergen Discount Shippers, LLC., where they were broken down and shipped to Comei's U.S. customers. Comei sent invoices to these customers who paid through Comei's U.S. factor, Hilldun Corporation. The invoices indicate that the freight terms are landed duty paid. Comei paid a commission to Lily Kate for its service as Comei's sales agent.
In the memorandum attached to the protest, Comei contends that the merchandise should be appraised based on the price it paid to XinXing based on the following:
First, because Xing Xing [sic] and Comei are not related parties, the sale from the manufacturer, Xing Xing [sic], to the importer, Comei, is at an "arm's length" price. Second, the goods were clearly destined for export to the United States when sold by Xing Xing [sic] to Comei, since: (1) they were produced by Xing Xing [sic] in strict compliance with designs provided by Comei; (2) they were pre-ordered by Comei's U.S. customers; (3) they were shipped directly from Xing Xing [sic] to the United States; and (4) as the documentation submitted with this Protest and AFR confirms, at all times Xing Xing [sic] recognized that it was producing these garments for shipment to Comei in the United States.
Comei has submitted several documents for each entry in support of its claims. These documents include commercial invoices from XinXing to Comei, proof of payment by Comei to XinXing, and packing lists. Comei has also submitted the March 21, 2003 purchase order from Comei to XinXing covering all the merchandise Comei ordered from XinXing for shipment to the U.S., including the goods under consideration, and a sales confirmation dated April 27, 2003 from XinXing to Comei. Comei has also submitted certain documentation relating to the transactions between Comei and its U.S. customers: Comei's invoice ledger for its U.S. sales in 2003, some purchase orders from Comei's U.S. customers to Lily Kate, and fax transmittals from Lily Kate to Comei for several of these purchase orders. Finally, Comei has submitted the "Sales Representative Agreement" between Lily Kate and ADD DOWN ("Lily Kate Agreement") which designates Lily Kate as ADD DOWN's exclusive sales agent in the United States. According to counsel, ADD DOWN is
a brand name used by Comei. Comei has also submitted an unsigned agreement between Bergen Shippers and Comei regarding the warehouse services provided by Bergen to Comei in the U.S.
In addition to the issue regarding which sale should be used to determined the price actually paid or payable for the imported merchandise, your office has also raised the issue of whether the selling commissions paid by Comei to Lily Kate should be added to the price actually paid or payable.
1. Whether transaction value should be based on the alleged sale between the foreign manufacturer (XinXing) and the importer of record (Comei) rather than on the transaction between Comei and Comei's U.S. customers.
2. If so, what additions, if any, should be made to the price actually paid or payable by Comei to XinXing?
LAW AND ANALYSIS:
The preferred method of appraising merchandise imported into the United States is the transaction value method as set forth in section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979, codified at 19 U.S.C. § 1401 a. As provided in 19 U.S.C. § 1401a(b)(1), 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 amounts for the enumerated statutory additions. In order for imported merchandise to be appraised under the transaction value method, there must be a bona fide sale between a buyer and seller and the merchandise must be sold for exportation to the United States.
In the instant case, Comei contends that the price paid by Comei to XinXing, plus the value of design assists furnished by Comei to XinXing, constitutes an acceptable transaction value for the merchandise under consideration. In determining whether that contention is correct, the first question to be considered is whether there were, in fact, bona fide sales between Comei and XinXing. In order for merchandise to be "sold" for purposes of 19 U.S.C. 1401a(b)(1), there must be a transfer of title from one party to another for consideration. VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed Cir 1999).
In determining whether property or ownership in property has been transferred, CBP considers whether the alleged buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, CBP may examine whether the alleged buyer paid for the goods, whether such payments are linked to specific importations of merchandise, 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 545705 (January 27, 1995). In considering whether a bona fide sale has taken place between a potential buyer and seller of imported merchandise, no single factor is determinative. Rather, the relationship is to be ascertained by an overall view of the entire situation, with the result in each case governed by the facts and circumstances of the case itself. See Dorf International, Inc. v. U.S., 61 Cust. Ct. 604, 610; 291 F. Supp. 690, 694; A.R.D. 245 (1968).
In the instant case, based on the transaction documents and the circumstances of the transactions, we find that the transactions between Comei
and XinXing were bona fide sales. The transaction documents indicate that Comei issued a purchase order to XinXing, XinXing issued invoices to Comei, Comei made payment to XinXing against those invoices, and the risk of loss passed from XinXing to Comei at the ships rail at the port of shipment. The roles of the parties and the circumstances of the transactions are also consistent with a finding of a bona fide sale. There are various indications that Comei (and Comei's agent, Lily Kate) played a key role in the import transactions and functioned as both a buyer in the transaction with XinXing and as a seller to the U.S. customers. Comei designed the garments, provided samples to the XinXing and then purchased the garments manufactured by XinXing. Comei's role in the import transactions is also reflected in the Lily Kate Agreement. Under the agreement, Comei solicits purchase orders through its sales agent in the U.S. from buyers and controls the terms and conditions of such U.S. purchases through its agent. In sum, we are satisfied that Comei purchases the imported merchandise from XinXing and sells this merchandise to customers in the U.S. Accordingly, we find that these transactions between XinXing and Comei constitute bona fide sales.
Based on this finding, the next question to be addressed is whether this sale constitutes a viable sale for exportation to the United States for purposes of determining transaction value. If it is, this is the sale upon which transaction value must be based. See Nissho lwai American Corp. v. United States, 982 F.2d 505 (Fed Cir 1992.). In Nissho lwai, the court stated "the manufacturer's price constitutes a viable transaction value "when the goods are clearly destined for export to the United States and when the manufacturer and the middleman deal with each other at arm's length, in the absence of any non-market influences that affect the legitimacy of the sales price." Id at 509. See also Synergy Sport International, Ltd. v. United States, 17 C. I. T. 18 (1993).
In the instant case, there is no indication that Comei and XinXing are related parties. Therefore, we presume that the sale in question was an arm's length sale. With regard to the clearly destined requirement, the documentation presented indicates that the merchandise was pre-ordered by Comei's U.S. customers and was destined for those customers throughout the transaction. Based on the paper trail and the fact that the merchandise was shipped directly from XinXing to the United States, we conclude that the merchandise at issue was clearly destined for the United States. Therefore, the sale between Comei and XinXing is a viable sale for exportation to the United States upon which transaction value should be based.
The last question to be addressed is whether any additions to the price actually paid or payable should be made pursuant to 19 U.S.C. § 1401 a(b)(1). As acknowledged by Comei and your office, the value of design assists provided by Comei to XinXing are properly added to the price actually paid or payable, pursuant to 19 U.S.C. § 1401a(b)(1)(C). Comei disagrees, however, with your view that the commissions Comei paid to Lily Kate must be added to the price actually paid or payable. As indicated below, we find that these commissions may not be added to the price actually paid or payable in this case.
Under 19 U.S.C. § 1401a(b)(1)(B) any selling commission incurred by the buyer with respect to the imported merchandise must be added to the price actually paid or payable. The CBP regulations define "selling commission" as any commission paid to the seller's agent, who is related to or controlled by, or works for or on behalf of, the manufacturer or the seller. 19 CFR § 152.102(b). The seller referred to in this provision is the seller in the sale for exportation to the United States.
Based on our finding that the sale for exportation to the United States is the sale between Comei and XinXing, Comei is the buyer and XinXing is the seller. Thus, in order for the commissions paid by Comei to Lily Kate to be selling commissions pursuant to 19 U.S.C. § 1401a(b)(1)(B) and 19 CFR § 152.102(b), Lily Kate must either be controlled by or work for XinXing. There is no indication that this is the case. To the contrary, as evidence by the Lily Kate Agreement, Lily Kate is Comei's sales agent in the U.S. and the selling commissions paid by Comei to Lily Kate are for services performed in connection with the sales of the garments to Comei's U.S. customers. Therefore, it appears that Lily Kate works for or is controlled by Comei in connection with the sale of the merchandise in the U.S. and that XinXing has no involvement in or control over the functions of Lily Kate. Accordingly, the commissions paid by Comei to Lily Kate are not selling commissions pursuant to 19 U.S.C. § 1401a(b)(1)(B) and 19 CFR § 152.102(b) and are not a proper addition to the price actually paid or payable.HOLDING:
The protest should be granted. The merchandise should be appraised under the transaction value method based on the sales between the foreign manufacturer (XinXing) and the U.S. importer (Comei). The value of the design assists provided by Comei to XinXing should be added to the price actually paid or payable by Comei to XinXing. No addition should be made for the commissions paid by Comei to Lily Kate.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs 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 the office of Regulations and Rulings 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.
Commercial and Trade Facilitation Division