OT:RR:CTF:VS H281951 CMR
John B. Pellegrini, Esq.
McGuire Woods
1345 Avenue of the Americas
Seventh Floor
New York, NY 10105-0106
RE: Request for Reconsideration of Headquarters Ruling Letter H266540
Dear Mr. Pellegrini:
This is in response to your letter of December 16, 2016, on behalf of your client, American Marketing Enterprises, Inc. (AME), requesting reconsideration of Headquarters Ruling Letter (HQ) H266540, dated September 8, 2016. In HQ H266540, AME ordered the merchandise from Millwork Pte. Ltd. (Millwork), a related party. Millwork ordered the merchandise from Sheen Bright (Shanghai) Limited (Sheen Bright), located in Malaysia. Sheen Bright then ordered the merchandise from Welfull Group Co, Ltd. (Welfull Group). CBP determined that the price between the supplier, Welfull Group, and the foreign seller, Sheen Bright, could not serve as a "first sale” transaction value for purposes of appraisement of the imported merchandise.
We have reviewed your request for reconsideration and considered the additional information you submitted on February 13, 2017, in response to our questions. However, we do not find any reason to alter our determination in HQ H266540. We disagree with your assessment that HQ H266540 represents “a course adjustment, if not a sea change, in the treatment of flash title.” As you are aware, each ruling is based on the facts and circumstances present in the case and made known to Customs and Border Protection (CBP). The existence of “flash title” transfer always raises concerns as to whether more than one sale truly exists and generally causes CBP to examine the transactions with closer scrutiny.
You asked whether the documentation supplied by AME to support a sale for export to the United States between Sheen Bright and Welfull Group was satisfactory. Simply put, the answer is no. There are discrepancies in the documents which raise some concerns. The concerns derive from all of the documentation submitted, not just the documentation between Sheen Bright and Welfull Group. Although that is the sale that is being claimed for appraisement purposes, we must look at the totality of the transaction and all of the documentation involved.
You have submitted a copy of the actual purchase order from AME to Millwork. You indicate that the earlier version that was provided to CBP was an EDI (Electronic Data Interchange) version, “which has much of the same information[,] but in a somewhat different format.” We note that in the purchase order it simply indicates that the order is “to” Millwork Pte. Ltd., but in the EDI version, Millwork Pte. Ltd. is identified at the line for “Agent Code MW(Millwork Pte. Ltd).”
If we look at just the transaction between Sheen Bright and Welfull Group, the purchase order from Sheen Bright to Welfull Group was dated July 16, 2014. However, the purchase orders from AME to Millwork and the purchase order between Millwork and Sheen Bright are each dated March 19, 2014. There is an approximately 4 month delay between the initial purchase orders and the order from Sheen Bright to Welfull Group, i.e., the supplier. This seems a bit unusual as purchase orders generally flow in a more timely manner, as there is a need to ensure that a producer will commit to schedule the necessary production of goods. You have explained that the purchase order from Millwork to Sheen Bright was issued on March 19, 2014 and initially accepted by Sheen Bright on April 17, 2014 (Exhibit 2 of your February 13, 2017 submission). Each page of the purchase order displays the following: “Executed Copy, These documents have been executed electronically by Joanne Tech for and on behalf of Sheen Bright (Shanghai) Limited on Li & Fung’s Vendor Portal on 17-Aug-2014.” The Millwork purchase order provided to the port and reviewed in HQ H266540 was the final purchase order and displays the same statement on each page regarding the electronic execution on the Li & Fung Vendor Portal, but the date on which the execution occurred is shown as “25-Aug-2014.”
With regard to the Millwork purchase orders, i.e., the original and final, you state that “[t]he multiple “acceptances” reflect revisions to the PO.” Comparing the original April 17, 2014 purchase order to the final Millwork purchase order, we note four differences – one style increased in price from $3.87 per unit to $3.95 per unit, increasing the overall contract price by $240.00; the trade discount was reduced from 4.5% to 3%; the original document, entitled “purchase contract”, did not identify LF Centennial as a buying agent for Millwork (the final document, entitled “purchase order”, does include LF Centennial in its terms as a buying agent); and the terms and conditions applicable to the documents were changed.
As you point out, CBP was provided with the terms and conditions for the purchase order between Millwork and Sheen Bright. However, the terms and conditions differ from the original to the final purchase order. The purchase order executed on August 25, 2014, identifies AME as the buyer, Sheen Bright as the seller, and LF Centennial Pte. Ltd. as the buying agent for Millwork. The “Terms and Conditions” on the back of the purchase order between provides in paragraph 1, Definitions:
For the purpose of these terms and conditions ("Conditions”), “Contract” shall
mean these Conditions together with the other components of the Placement Memorandum and purchase order terms as communicated to the Vendor by the Buying Agent, including size specifications, testing requirements, and so forth, (collectively, the “Placement Memorandum”). “Vendor”, “Buyer” and “Buying Agent” shall mean the parties referred to as such in the Placement Memorandum and “Goods” shall mean the goods which are the subject of the Placement Memorandum.
You have submitted the Placement Memorandum for the goods at issue. It identifies the vendor as Sheen Bright, LF Centennial Pte. Ltd. as the buying agent, and Millwork as the buyer. The Placement Memorandum, like the purchase order between Millwork and Sheen Bright originally received by CBP, indicates on each page that it is an “Executed Copy, These documents have been executed electronically by Joanne Tech for and on behalf of Sheen Bright (Shanghai) Limited on Li & Fung’s Vendor Portal on 25-Aug-2014.” The Placement Memorandum associated with the final Millwork purchase order states at the top of every page:
LF CENTENNIAL PTE. LTD (Company Registration No. 20061833D) as Buying Agent for and on behalf of the Buyer specified below [Millwork], have this day agreed to purchase for the undermentioned Vendor [Sheen Bright], as per terms and conditions stated on the face and overleaf hereof.
However, the original Millwork purchase order, states in paragraph 1 of the “Terms and Conditions”:
For the purpose of these terms and conditions, the work “Buyer” shall mean MILLWORK PTE. LTD. The word “Seller” shall mean the company, firm or person whose name and address appear under the heading “manufacturer” overleaf.
Both the original and final Millwork purchase orders state at the top of each page:
MILLWORK PTE. LTD. (Company Registration No. 200902782H) have this day purchased from the undermentioned Seller, as per terms and conditions stated on the face and overleaf hereof.
And at the bottom of each page, in both the original and final purchase orders, it is stated:
The Seller acknowledges by clicking accept for the Purchase Order that the terms and conditions printed on the face hereof and below shall constitute the entire contract between the Seller and Millwork Pte. Ltd.
All of these documents are dated March 19, 2014. The final Millwork purchase order and the Placement Memorandum indicate that the buying agent and its principal, Millwork, purchased the goods from Sheen Bright. However, Sheen Bright invoiced Millwork directly, not through its buying agent. Yet, the Placement Memorandum is a contract between the vendor, Sheen Bright, and the buying agent, LF Centennial. Based on the documentation, the roles and responsibilities of these parties are confusing at the very least.
Returning to the sale claimed for purposes of appraisement, Sheen Bright issued its purchase order to Welfull Group on July 16, 2014. This is approximately three months after its acceptance of the purchase order (based on the execution date of April 17, 2014) and slightly more than one month prior to the order being finalized (based on the execution date of August 25, 2014). Various “Consumer Product Safety Improvement Act Certificate of Compliance” documents which state that the foreign manufacturer, Hangzhou Hua Er Mei Garments Co. Ltd. (hereinafter, Hangzhou Hua Er Mei), and the U.S. importer, AME, certify that garments produced by Hangzhou Hua Er Mei meet Consumer Product Safety Commission requirements, indicate the garments were produced during time periods ranging from as early as May 28, 2014 and as late as July 18, 2014. We note the certifications are undated themselves.
Although you indicate that the Millwork purchase order was initially accepted by Sheen Bright in April 2014, prior to the earliest production date reflected in the CPSC Certificates, Sheen Bright’s purchase order to Welfull Group is dated July 16, 2014. Of course, Welfull then had to order the merchandise from the actual manufacturer, Hangzhou Hua Er Mei, which would seem unlikely to have occurred before Welfull received a purchase order. The CBPS Certifications by Hangzhou Hua Er Mei, indicate that the ordered garments, some if not most, were manufactured prior to Sheen Bright placing the purchase order with the manufacturer. By way of explanation, you submit in your February 13, 2017, memorandum that “Sheen Bright explain[ed] that prior to issuing a PO, it is common for it to contact the seller with an indication of the type and quantity or (sic) merchandise it expects to purchase.” This may be true, but we have no evidence of this earlier contact prior to the issuance of the purchase order to Welfull Group, much less the purchase order from Welfull Group to the actual manufacturer, Hangzhou Hua Er Mei.
The invoice from Welfull Group to Sheen Bright is dated September 1, 2014 and indicates the goods are shipping on or about September 1, 2014. We also have an invoice by Hangzhou Hua Er Mei, the actual manufacturer from whom Welfull Group ordered the goods, whereby Hangzhou Hua Er Mei invoices Sheen Bright on September 1, 2014, which adds confusion to the transaction. You admit you cannot explain why this occurred, but assume it is somehow related to the export regime in China.
A question arises in this case of the acceptability of the first sale claim because of the discrepancies in the dates of the documents and the roles of the parties, as stated in HQ H266540. In a case such as this, in which the submitted documentation infers the sale was part of a chain of sales that began with a U.S. importer and the documentation includes a statement from the first sale vendor, Sheen Bright, indicating that it “will contract with” factories to manufacture the merchandise, the conflicting dates, the multiple flash titles, the lack of a contract between the parties for which the “first sale” claim is being made (i.e., only a purchase order, invoice and proof of payment were submitted), and the numerous parties whose roles are not clearly delineated by the documentation (e.g., the EDI version of the AME purchase order to Millwork identifies Millwork at “agent code”; GBG USA Inc. as the buyer; LC Centennial Pte. Ltd, the buying agent, as the administrative office; and Sheen Bright as the vendor) led CBP to reject the first sale claim. The original Millwork purchase order with different terms and conditions from the final Millwork purchase order does not add any clarity to the situation.
You state that the request for reconsideration is to temper statements in the ruling which your client views as overly broad with regard to factors relied upon in concluding there was no bona fide sale. While we appreciate the expressed concern, we do not believe there is a need to modify the decision as this decision, as in all rulings, is specific to the facts set forth in the decision. Accordingly, based on your arguments, our review of the submitted documentation and supplemental evidence to support your reconsideration request, and our analysis, we conclude that HQ H266540 is correct.
Sincerely,
Yuliya A. Gulis, Acting Chief
Valuation and Special Programs Branch