OT:RR:CTF:VS H303114 JMV
Cathy Spencer
Freight Expediters, Inc.
7200 Alum Creek Drive, Suite F
Columbus, OH 43217
Re: First Sale Appraisement; Tools; Camp Axe
Dear Ms. Spencer,
This is in response to your letter dated March 8, 2019, on behalf of Woodcraft Supply LLC (“Woodcraft”). In your letter, you request a ruling pursuant to 19 C.F.R. Part 177 regarding whether the sale between the middleman and the manufacturer qualifies as an acceptable basis for appraisement of the subject merchandise.
FACTS:
Woodcraft, located in West Virginia, operates woodworking specialty retail stores across the United States. It also publishes a woodworking industry magazine, distributes consumer catalogs and operates an ecommerce website. Woodcraft has two trading partners: Asia Woodriver in Taiwan and Woodriver International Trade Co., Limited in Shanghai (Shanghai Woodriver). Shanghai Woodriver and Asia Woodriver (collectively “Woodriver”) are related, but Woodcraft is not related to either. Woodcraft, Shanghai Woodriver and Asia Woodriver are not related to any of the factories from which Woodcraft’s imported products are sourced.
Woodcraft issues purchase orders to either Asia Woodriver or Shanghai Woodriver, who then selects and contacts the manufacturer. All purchase orders will be sent to Asia Woodriver, for coordination of the purchase orders for both companies. The orders for Chinese produced product will be forwarded to Shanghai Woodriver and the other orders will remain with Asia Woodriver for processing. Both companies will then place the orders with the appropriate factories.
Asia Woodriver or Shanghai Woodriver provides the specifications to the factory based on the products that Woodcraft has ordered. Asia Woodriver and Shanghai Woodriver are free to select downstream customers without consultation from Woodcraft. The factories allow Woodriver to sell to whomever they select as long as the sales are not for products where another customer has exclusive rights to a factory product. Woodcraft never deals directly with the factories. A written agreement between Woodcraft and Asia Woodriver and/or Shanghai Woodriver does not exist and the individual purchase orders serve as the purchase contract. Woodcraft and Shanghai Woodriver/Asia Woodriver are in a long term (verbal) agreement of an 18% markup from the factory price for Shanghai Woodriver and a 12% markup over factory costs for Asia Woodriver. The commercial invoices for shipments from Asia Woodriver and Shanghai Woodriver are also created through the Asia Woodriver location, which sends the invoices to Woodcraft. Both companies are paid via wire transfer in U.S. Dollars.
Asia Woodriver will coordinate the items produced in Taiwan and will ship them from Taiwan. Chinese produced goods are shipped directly from the factory in China to the freight forwarder. The terms of sale between Asia Woodriver and Woodcraft for the Taiwan shipments are FOB Taichung. The terms of sale between Shanghai Woodriver and Woodcraft for the shipments out of China will be FOB Shanghai, FOB Ningbo or FOB Qingdao. Your initial submission states that Shanghai Woodriver and Asia Woodriver assume the risk of damage and /or loss and for any costs incurred from the time the goods leave the factory until loaded on board the vessel at the port of export. However, via email correspondence, you subsequently stated that the factory assumes all risk of damage or loss until the goods are delivered to the container stuffing location, which will be at the manufacturing facility if a full container is used, or if a “less than container load” (“LCL”) shipment is used, then the stuffing facility will be at or near the port. You also stated that “there is nothing in writing that disclosed when title/risk of loss transfers from the factory to Woodriver.” You also state that Woodcraft provides the cargo insurance for the international movement and pays the ocean freight.
As an example, you provided this office with a documentation trail for the WR Camp Axe, Part# 160767. You state that the documentation shows that the goods are clearly destined for export to the United States. You provided the following documentation:
Woodcraft purchase order (“PO”) to Shanghai Wood river
Woodriver Shanghai purchase order to the factory Yangjiang Oslan Hardware Industry Co. Ltd.
Yangjiang Oslan Hardware Industry Co. Ltd. invoice to Woodriver
Woodriver wire transfer to Yangjiang Oslan Hardware Industry Co., Ltd. without terms of sale
Woodriver’s commercial invoice to Woodcraft with FOB Shanghai terms of sale
Woodcraft’s payments to Woodriver Shanghai which includes a 2% discount
Bill of Lading for the shipment that includes the Camp Axes, with Port of lading Shanghai
We note that Woodcraft’s PO number, item number and exact quantity appear on the Woodriver PO to the factory. The invoice from the factory to Woodriver Shanghai shows the same item number, PO number and quantity. The commercial invoice to Woodcraft from Woodriver also shows the same part number, PO number and quantity.
ISSUE:
Whether the transaction at issue may be appraised using the transaction value between the foreign manufacturer and Woodriver as a bona fide sale for export to the United States.
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 (“TAA”), codified at 19 U.S.C. § 1401a. 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 five enumerated statutory additions. 19 U.S.C. § 1401a(b). In order for imported merchandise to be appraised under the transaction value method, it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States.
In Nissho Iwai American Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992) and Synergy Sport International, Ltd. v. United States, 17 CIT 18 (1993), the Court of Appeals for the Federal Circuit and the Court of International Trade (“CIT”), respectively, 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. Both cases involved a foreign manufacturer, a middleman, and a United States purchaser. In each case, the court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. Each court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale conducted at arm’s length, free from any non-market influences, and involving merchandise clearly destined for export to the United States at the time of the first sale. In accordance with the Nissho Iwai and Synergy decisions, we presume that transaction value is based on the price paid by the importer. In further keeping with the courts’ holdings, we note that an importer may request appraisement based on the price paid by the middleman to the foreign manufacturer in situations where the middleman is not the importer. However, it will be the importer’s responsibility to show that the “first sale” price is acceptable under the standard set forth in Nissho Iwai and Synergy. 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, 30 Cust. Bull. 52/1 (January 2, 1997), CBP set forth the documentation and information needed to support a ruling request that transaction value should be based on a sale involving a middleman and the manufacturer or other seller rather than on the sale in which the importer was a party. 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 payment, contracts, and any additional documents (e.g. correspondence) 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 VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the Court of Appeals for the Federal Circuit 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. Id. (citing J.L. Wood v. United States, 505 F.2d 1400). No single factor is decisive in determining whether a bona fide sale has occurred. CBP makes each determination on a case-by-case basis and will consider such factors as whether the purported buyer assumed the risk of loss and acquired title to the imported merchandise.
Since the manufacturer is not related to the purchaser, Woodriver, the sale between them is presumed to be at arm’s length. Further, we find that Woodcraft has shown that the sale between Woodriver and the manufacturer will be a sale for export to the United States. The purchase order from Woodcraft to Woodriver and the packing list from Woodriver indicate the merchandise is to be shipped to West Virginia, USA. Additionally, all other documents provided indicate that Woodriver orders the same quantity of merchandise from the factory as it will supply to Woodcraft. Thus, the transaction meets the requirement of being an arm’s length transaction for goods clearly destined to the United States for purposes of transaction value. However, we must also consider whether a bona fide sale occurs.
Several factors may indicate that a bona fide sale exists between the purported buyer and seller. In determining whether property or ownership has been transferred, CBP considers whether the potential buyer has assumed the risk of loss and acquired title to the imported merchandise. In addition, CBP may examine whether the purported buyer paid for the goods 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 Headquarters’ Ruling (“HQ”) 545474, dated August 25, 1995; and HQ 545709, dated May 12, 1995 (examining the circumstances of the transaction when considering whether the parties functioned as buyer and seller).
We find that Woodcraft has not sufficiently demonstrated that Woodriver and the manufacturer are functioning as buyer and seller. While Woodcraft provided the purchase orders and invoices between the manufacturer and Woodriver and the proof of payment from Woodriver to the manufacturer, thereby showing that consideration passes from Woodriver to the manufacturer in exchange for the merchandise, it remains unclear whether Woodriver assumes the risk of loss and receives title to the imported merchandise. A determination of when title and risk of loss pass from the seller to the buyer in a particular transaction depends on whether the applicable contract is a “shipment” or “destination” contract. FOB point of shipment contracts and all CIF and C&F contracts are “shipment” contracts, while FOB place of destination contracts are “destination” contracts. Unless otherwise agreed by the parties, title and risk of loss pass from the seller to the buyer in “shipment” contracts when the merchandise is delivered to the carrier for shipment, and in “destination” contracts when the merchandise is delivered to the named destination.
The commercial invoice from the sample transaction between Woodriver and the manufacturer do not include any shipment terms, and Woodcraft states that “there is nothing in writing that disclosed when title/risk of loss transfers from the factory to Woodriver.” Since Woodriver cannot demonstrate that Woodriver receives title or risk of loss, Woodcraft has not first sale price cannot be used as the basis of appraisal.
HOLDING:
Woodcraft has not presented sufficient information to demonstrate that the “first sale” transaction is a bona fide sale for exportation to the United States. The merchandise should be appraised under transaction value based on the price actually paid or payable by Woodcraft.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a CBP field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch