OT:RR:CTF:VS H322425 AMW
Center Director
C/O Dakeisha D. Thomas
Machinery Center for Excellence and Expertise
U.S. Customs and Border Protection
2350 N Sam Houston Pkwy E
Houston, TX 77032
RE: Protest and Application for Further Review of Protest No. 3901-21-124553; 19 U.S.C. §
1401a; First Sale; Multi-Tiered Transaction
Dear Center Director:
This is in response to the Application for Further Review (“AFR”) of Protest No. 3901-21-
124553, dated May 26, 2021, timely filed by CSB Energy Technology (Americas) Co., Ltd.
(“CSB-AM” or the “Protestant”).
FACTS:
This protest relates to eight entries of rechargeable storage batteries imported by Hitachi
Chemical Energy Technology (Americas) Co., Ltd. (“HC-AM”) between December 28, 2019,
and January 9, 2020. The entries involve a multi-tiered transaction with three related parties: (1)
HC-AM, a U.S. company that is the importer of record; (2) Hitachi Chemical Energy
Technology Co., Ltd (“HCEN”), a Taiwanese entity serving as a middleman; and (3) Hitachi
Chemical Energy Technology (Vietnam) Co., Ltd. (“HC-VN”), a Vietnam-based manufacturer.
Hitachi Chemical was purchased by Showa Denko K.K. in March 2020, and protestant CSB
Energy Technology is the successor entity. Many of the underlying documents reference either
Hitachi or CSB entities interchangeably.
As outlined in the protest and underlying documents, the subject transactions occurred in
the following manner. First, HC-AM issued a purchase order to HCEN for merchandise to be
shipped to the United States. Second, HCEN placed an order with HC-VN that mirrored the
initial purchase order. Third, the subject merchandise was then shipped directly from HC-VN in
Vietnam to the United States, either to HC-AM’s warehouse or directly to the final U.S.
purchaser. Although HCEN functioned as the middleman, it never took physical possession of
the subject merchandise. The Protestant claims that the imported merchandise should be
appraised on the first-sale price between HC-VN as the manufacturer and HCEN as the
middleman.
In furtherance of the above, the documents provided by the Protestant show the following
illustrative transaction. On August 31, 2019, HC-AM issued purchase order no. 3BP-190808002
to HCEN, ordering 17,280 battery units at a price of USD $7.55 per unit to be shipped directly to
an unrelated purchaser in the United States. Also on August 31, 2019, HCEN issued to HC-VN
a purchase order for the same amount of battery units at $6.86 per unit. On November 25, 2019,
HCEN issued corresponding invoice 5BP-191125001 to HC-AM, specifying FOB term of
delivery and a payment term of 120 days. Also on November 25, 2019, HC-VN issued to HCEN
invoice no. 5BP-191125001 for the subject batteries at a unit price of $6.86, specifying the same
FOB term of delivery and payment term of 120 days. On December 23, 2019, a bank statement
provided by the Protestant indicates HCEN made a payment to HC-VN that included an amount
for the relevant merchandise. On December 30, 2019, HC-AM entered the subject merchandise,
declaring the transaction value between HC-AM and HCEN (i.e., the second sale) to be the
applicable customs valuation. Finally, on June 8, 2020, a “wire transfer summary report”
indicates HC-AM made a payment to HCEN that included a line-item associated with the
illustrative transaction.
The Protestant provided the following documentation in support of its claim:
• CF-7501 Entry Summary documents for all eight of the protested entries;
• Shipping documents (i.e., Packing List, Sea Freight Arrival Notice, and Bill of
Lading) for illustrative transaction (the December 30, 2019, entry) showing
shipment directly from HC-VN to ultimate purchaser in the United States;
• Purchase orders from the importer, HC-AM, to the middleman, HCEN;
• Purchase orders from HCEN, to the manufacturer, HC-VN;
• Invoices from HC-VN to HCEN;
• Invoices from HCEN to HC-AM;
• Bank statements showing payments from HC-AM to HCEN and from HCEN to
HC-VN;
• Statements of Comprehensive Income related to CSB Energy Technology Co., Ltd.
(also referenced as HCEN) for fiscal years 2019 and 2020;
• Partial translation of HCEN Internal Memorandum discussing “Adjustment of
transfer pricing of battery sale between HCEN, PH, VN and AM, EM, effective
date 2018/07/01;”
• Partial translation of HCEN Internal Report discussing “Adjustment of the transfer
pricing between VN and HCEN as well as HCEN to EM, effective date
2019/12/01;” and
• Duty refund estimates for the entries at issue.
2
ISSUE:
Whether the transactions at issue may be appraised using the first-sale transaction value
between the middleman (HCEN) and manufacturer (HC-VN) as a bona fide sale for export to the
United States.
LAW AND ANALYSIS:
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 primary 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). When transaction
value cannot be applied, then the appraised value is determined based on the other valuation
methods in the order specified in 19 U.S.C. § 1401a(a).
In Nissho Iwai American Corp. v. United States, 982 F. 2d 505 (Fed. Cir. 1992), 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 case involved a foreign manufacturer, a middleman, and a U.S. purchaser.
The court held that the price paid by the middleman/importer to the manufacturer was the proper
basis for transaction value. The court further stated that 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. See also Synergy Sport
International, Ltd. v. United States, 17 C.I.T. 18 (1993).
In accordance with Nissho Iwai and our own precedent, we presume that transaction
value is based on the price paid by the importer. In further keeping with the court’s holding, 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 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
U.S. 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. correspondences) 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
3
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.
First, we must determine if indeed a bona fide sale occurred between HC-VN and HCEN.
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, (citing J.L. Wood v. United States,
62 C.C.P.A. 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974)). No single factor is decisive in
determining whether a bona fide sale has occurred, and CBP instead makes each determination
on a case-by-case basis. See Headquarters Ruling Letter (“HQ”) 548239, dated June 5, 2003.
CBP will consider such factors as to whether the purported buyer assumed the risk of loss for,
and acquired title to, the imported merchandise. 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
January 27, 1995. In addition, CBP may examine whether the purported 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. CBP rulings have consistently outlined the following four factors to be considered in
determining whether a transaction constitutes a bona fide sale for export: (1) whether the buyer
provides or could provide instructions to the seller, (2) whether the buyer is free to sell the
transferred item at any price he or she desires, (3) whether the buyer selects or could select its
own downstream customers without consulting with the seller, and (4) whether the buyer could
order the imported merchandise and have it delivered for its own inventory. See, e.g., HQ
H266540, dated September 8, 2016.
The Protestant argues that the transactions between HC-VN, acting as the supplier, and
HCEN, acting as the middleman, constitute a bona fide sale. Specifically, the Protestant states,
“HCEN indicated through correspondence that all 4 criteria are met.” In support, the Protestant
states that, “[the] sequence of orders, invoices, and payments provide evidence that the criteria of
bona fide sale have been met. There is additional evidence of a bona fide sale in that HCEN
indicated in its correspondence that it secures insurance for the merchandise and therefore
assumes the risk of loss.” (Italics added.) Although the Protestant references “correspondence”
supporting its claim, the Protestant does not provide the underlying communications, nor does it
provide any independent documentation showing HCEN purchased insurance for its portion of
the transactions. Furthermore, the Protestant has not provided any contracts, correspondence, or
other documentation showing how the parties organized, negotiated, and conducted the
underlying transactions. As such, the Protestant has not provided a complete paper trail
describing the roles of the parties and the circumstances of the transaction.
Even assuming the documentation provided by Protestant were sufficient, the available
record indicates no bona fide sale between HC-VN and HCEN occurred. To begin with, the
Protestant has confirmed that the subject transactions between HC-VN and HCEN were “flash
4
sales” in which the purchase orders were transmitted instantaneously from HC-AM to HCEN
and HC-VN. The underlying documentation (e.g., purchase orders, invoices, shipping
documents) further show that HCEN never took physical possession of the underlying
merchandise, which was instead shipped directly from HC-VN to either HC-AM or the ultimate
customer. In relevant part, simultaneous or flash transfer of title, where the parties obtain title at
virtually the same moment, as evidenced by parties having the same terms of sale, may cause
CBP to more closely scrutinize a transaction. See HQ 548526, dated January 5, 2005.
In HQ 546192, dated February 23, 1996, CBP considered whether a flash sale between a
related manufacturer and middleman constituted a bona fide sale. In doing so, CBP analyzed the
four factors outlined above (i.e., whether the middleman provided or could provide instructions
to the seller, was free to sell the transferred item at any price he or she desired, selected or could
select its own downstream customers without consulting with the seller, and could order the
imported merchandise and have it delivered for its own inventory). The terms of sale was CIF,
which held the seller responsible for the costs, insurance and freight necessary to bring the
merchandise to the named port of destination, but the risk of loss or damage to the merchandise
was transferred from the seller to the middleman. However, the middleman stated that insurance
was arranged by the U.S. purchaser, which meant that the risk of loss immediately transferred
from the seller to the U.S. purchaser. CBP also noted that the goods were shipped directly from
Sweden to the United States, and the middleman neither held title nor bore the risk of loss of the
merchandise. CBP concluded that the only sale was between the U.S. purchaser and the foreign
seller and the middleman was acting as the agent for the U.S. purchaser.
In the present case, as conceded by the Protestant, there are two simultaneous passages of
title: HC-VN to HCEN, and HCEN to HC-AM. In addition, the shipping terms for both
transaction levels (i.e., between HC-VN and HCEN, and HCEN and HC-AM) are FOB Vietnam.
In a FOB port of export term of sale, the risk of loss transfers from the seller to the buyer upon
lading on the outgoing carrier. See Incoterms 2010, International Chamber of Commerce, 87
(2010). In the absence of written instructions to the contrary, it is commonly accepted that title
passes simultaneously with the assumption of risk of loss. Based on the documents submitted, it
appears that the HCEN and HC-AM take title at the same time, i.e., FOB Vietnam, and the
documents do not provide written instructions to the contrary. Similar to HQ 546192, this matter
involves a flash sale in which the underlying merchandise is also transported directly to the
United States without entering the middleman’s possession. Accordingly, the instantaneous
passage of title combined with the direct shipment to the United States provide persuasive indicia
that title and risk of loss did not transfer to HCEN and that no bona fide sale occurred between
the HC-VN and HCEN.
Furthermore, the documentation provided by the Protestant indicates that HCEN was not
free to purchase or sell merchandise independently. For instance, the illustrative transaction
discussed in the FACTS above was initiated by a purchase order issued by HC-AM to HCEN.
This purchase order specifies that the subject battery units were to be provided by HC-VN
(“[HC]-AMHCEN[HC]-VN”), and indeed the subsequent purchase order issued by HCEN
to HC-VN contains the same identification number as that issued by HC-AM to HCEN. As
referenced in HQ H266540, dated September 8, 2016, this provides evidence that HCEN did not
look for a buyer for the goods and also did not choose the factory to produce the goods. And, as
5
noted above, the Protestant has not submitted any documents that show HCEN could sell the
merchandise to any other party or at another price, or that HCEN had any dealings with any other
buyers or initiated transactions on its own behalf. See HQ H097616, dated November 21, 2011;
and HQ H016966, dated December 17, 2007. As a result, the roles of the parties in this
transaction are not clearly identified and the Protestant has not met the Nissho Iwai standard to
use the “first sale” price between the supplier and the foreign seller.
Finally, even if a bona fide sale occurred between HC-VN and HCEN, to use the
transaction value in a related party transaction, the Protestant must demonstrate that the subject
price actually paid or payable constituted an arm’s-length price. Special rules apply when the
buyer and seller are related parties, as defined in 19 U.S.C. § 1401a(g). Specifically, transaction
value between a related buyer and seller is acceptable only if the transaction satisfies one of two
tests: (1) circumstances of sale, or (2) test values. See 19 U.S.C. § 1401a(b)(2)(B). “Test
values” refer to values previously determined pursuant to actual appraisements of imported
merchandise. Thus, for example, a deductive value calculation can only serve as a test value if it
represents an actual appraisement of merchandise under section 402(d) of the TAA. See HQ
543568, dated May 30, 1986. The purpose of these rules is to ensure that the relationship
between the parties does not affect the price. In this instance, the transaction involves related
parties. However, no information is available concerning previously accepted test values.
Consequently, the circumstances of the sale approach must be used to determine the acceptability
of transaction value.
Here, the Protestant argues that the circumstances of the sale between HCEN and HC-VN
establish that the prices actually paid or payable by HCEN to HV-VN were not influenced by the
relationship between the parties because the subject transactions satisfy the “all cost plus profit”
test. The “all cost plus profit” method examines whether the related party price compensates the
seller for all its costs plus a profit that is equivalent to the firm’s overall profit realized over a
representative period of time in sales of merchandise of the same class or kind. See, e.g., HQ
H233328, dated April 1, 2015. In doing so, the Protestant compared the profits made by HC-
VN, the manufacturer, on the subject transactions to the overall profits of HCEN, the middleman
and HC-VN’s parent. In support, Protestant provided a translation of HCEN’s “Financial
Statements Originally Issued in Chinese” showing HCEN’s comprehensive income in fiscal
years 2019 and 2020, which were used to calculate HCEN’s operating profit margin for those
years. The document, however, provides no indication of what merchandise was involved and
does not separately provide HCEN’s overall profit margins by sales of merchandise of the same
class or kind. Therefore, it cannot be said, based on the information provided, that the price is
adequate to ensure recovery of all costs plus a profit that is equivalent to the firm’s overall profit
in sales of merchandise of the same class or kind. See, e.g., HQ H233328 (“Further, in this case,
the Importer did not breakdown the Seller’s profit margins by sales of merchandise of the same
class or kind. As such, the all costs plus a profit test is not satisfied.”) Therefore, the Protestant
has not sufficiently demonstrated that, even if a bona fide sale occurred, that the sales between
HCEN and HC-VN were arm’s length transactions.
6
HOLDING:
The protest should be denied. For the reasons outlined above, the subject merchandise is
not eligible for appraisement on the first sale between the related manufacturer and middleman.
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, the Office of Trade, Regulations and Rulings will make the
decision available to CBP personnel, and to the public on the Customs Rulings Online Search
System (CROSS) at https://rulings.cbp.gov/ which can be found on the U.S. Customs and Border
Protection website at http://www.cbp.gov and other methods of public distribution.
Sincerely,
For Yuliya A. Gulis, Director
Commercial and Trade Facilitation Division
7