OT:RR:CTF:VS H332358 RRB
Center Director
Apparel, Footwear & Textiles Center
U.S. Customs and Border Protection
4813 Pacific Hwy E
Fife, WA 98424
Attn: Angela Hultz, Supervisory Import Specialist; Stephen Bono, Import Specialist
RE: Application for Further Review of Protest No. 4601-23-134023; Dreamwear Inc.;
First Sale Valuation
Dear Center Director,
This is in response to the Application for Further Review (“AFR”) of Protest No.
4601-23-134023, timely filed on February 27, 2023, by Sharretts, Paley, Carter &
Blauvelt, P.C., on behalf of their client, Dreamwear Inc. (“Protestant” or “Dreamwear”),
contesting U.S. Customs and Border Protection’s (“CBP”) decision to deny
Dreamwear’s “first sale” valuation of the imported merchandise. In response to our
office’s request for supplementary information regarding Dreamwear’s claims,
Dreamwear submitted additional supporting documentation on October 1, 2024, and
October 15, 2024. Pursuant to Dreamwear’s request, our office held a teleconference
meeting on March 26, 2025, with Dreamwear and their counsel. Subsequent to this
teleconference, on April 29, 2025, counsel for Dreamwear provided additional
supporting documentation. Lastly, in response to our request for a more detailed
organizational chart concerning the related parties, counsel for Dreamwear provided an
explanation via email, dated May 12, 2025, regarding how the middleman vendor and
factory seller are related. Our response considers all of the information presented in the
above-referenced submissions and meeting.
We further note that this protest has been designated as a lead protest, with one
other protest pending under this protest.
FACTS:
The lead protest concerns two entries of clothing that were entered on August
21, 2020, and September 25, 2020, by Dreamwear, and liquidated on September 2,
2022. The entries at issue all involve clothing produced in China and were subject to
multi-tiered transactions. The importer, Dreamwear, purchases clothing from a
“middleman” vendor, Lucky Zone Development Limited (“Lucky Zone”). Lucky Zone
does not manufacture the clothing items, but places orders with a related factory seller,
DongGuan Lucky Zone Garments and Accessories Co. Ltd. (“DongGuan Lucky Zone”).
Lucky Zone and DongGuan Lucky Zone are related parties. Counsel states that the
underlying transactions between the middleman vendor and the related factory seller
involve raw material assists (fabric, trims, and packaging) provided by Lucky Zone to
DongGuan Lucky Zone free of charge.
Counsel claims that the first sale valuation of the entries at issue based upon the
sales price between Dreamwear’s middleman vendor, Lucky Zone, and DongGuan
Lucky Zone, should have been used. CBP determined that because Dreamwear’s
multi-tiered import transactions did not meet the requirements of Treasury Decision
(“T.D.”) 96-87, dated January 2, 1997, the first sale entry line items should have been
entered at the price actually paid or payable between the importer and middleman
vendor, not based on the sales prices between the middleman and the factory related to
the middleman.
In support of this protest, Counsel provided various documents concerning two
representative transactions from 2020 with Lucky Zone as the middleman vendor and
DongGuan Lucky Zone as the related factory seller. Some of the specific documents
are:
• An organizational chart identifying Lucky Zone as the middleman vendor and
DongGuan Lucky Zone as the related factory seller;
• Documents, much of which were initially not translated into English 1, in support of
Dreamwear’s claim that the protested entries included two bona fide sales for export
to the United States, including the following:
o Dreamwear’s purchase orders to the middleman vendor, Lucky Zone, for the
underlying merchandise, under “FOB Shenzen” sales terms.
o Lucky Zone’s purchase orders to DongGuan Lucky Zone on an ex-factory
basis.
o Invoices from DongGuan Lucky Zone to Lucky Zone on an ex-factory basis,
along with packing lists and a transaction value worksheet highlighting the
subject styles at issue. Counsel claims that the transaction value worksheet
1
In response to our request for translated documents, on October 15, 2024, Dreamwear submitted what it
claims were translated versions of its earlier documentary evidence. However, these documents were
either only partially translated, were incoherent, or did not identify the proper parties as alleged in the
subject protest. Subsequently, on April 29, 2025, Dreamwear submitted what it avers are professionally
translated versions of its documentary evidence.
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summarizes the first cost transaction and confirms that the underlying
transactions involved raw material assists (fabric, trims, and packaging)
provided by Lucky Zone to DongGuan Lucky Zone free of charge. The
purchase terms between Lucky Zone and DongGuan Lucky Zone to produce
the apparel were “CMT,” which requires that Lucky Zone supply and deliver
all the fabric, trim, and materials directly to DongGuan Lucky Zone.
o Invoices from Lucky Zone to Dreamwear.
To confirm the accuracy of the assist costs declared at time of entry, as reflected
on the transaction value worksheet used at that time, counsel provided Lucky Zone’s
purchase, payment, and receiving records associated with these expenses. 2
In support of its claims of a bona fide sale between Lucky Zone as the
middleman vendor and DongGuan Lucky Zone as the related factory seller, counsel
provided proof of payment from Lucky Zone to DongGuan Lucky Zone. Counsel also
provided Lucky Zone’s ledger recordings for the underlying sales to support its claim of
a bona fide sale between Lucky Zone and DongGuan Lucky Zone. 3
To show that there were no additional expenses that should have been included
in the first sale cost, counsel provided a copy of Lucky Zone’s chart of accounts.
To confirm that there were two independent sales at arm’s length, counsel
provided Lucky Zone and DongGuan Lucky Zone’s audited 2019 and 2020 profit and
loss statements for its revenue from orders from Dreamwear. Counsel asserts that this
documentation demonstrates that the factory realized a gross margin each year
sufficient to recover all of its costs plus a profit.
Based on the foregoing, the Protestant asserts that this documentation
demonstrates the legitimacy of its first sale claims because it confirms that: 1) the
goods were purchased via bona fide sales between the factory and middleman vendor
and the middleman vendor and Dreamwear, respectively; 2) the underlying goods were
clearly destined for the United States; 3) all transactions were at an arm’s length; and 4)
there is no evidence that the first sale transactions were subject to any non-market
influences.
ISSUE:
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In response to our August 30, 2024, request for translated documents, on October 15, 2024,
Dreamwear submitted what it claims were translated versions of its earlier documentary evidence.
However, these documents were either only partially translated, were incoherent, or did not identify the
proper parties as alleged in the subject protest. Subsequently, on April 29, 2025, Dreamwear submitted
what it avers are professionally translated versions of this documentation.
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In response to our August 30, 2024, request for translated documents, on October 15, 2024,
Dreamwear submitted what it claims were translated versions of its earlier documentary evidence.
However, these documents were either only partially translated, were incoherent, or did not identify the
proper parties as alleged in the subject protest. Subsequently, on April 29, 2025, Dreamwear submitted
what it avers are professionally translated versions of this documentation.
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Whether the Protestant submitted sufficient evidence to support the use of
transaction value of the entered merchandise based upon the sales between the
middleman vendor and its related factory seller under the “first sale” principle of
appraisement set forth in 19 U.S.C. § 1401a(b).
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 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 certain statutory additions. 19 U.S.C. §
1401a(b)(1).
In accordance with Nissho Iwai American Corp. v. United States, 16 C.I.T. 86,
786 F. Supp. 1002, reversed in part, 982 F. 2d 505 (Fed. Cir. 1992), and Synergy Sport
International, Ltd. v. United States, 17 C.I.T. 18 (1993), appraisement of imported
merchandise based on a bona fide sale of goods for export to the United States, prior to
the last sale for export to the United States, is a legitimate basis of appraisal and CBP
will appraise merchandise for which a “first sale” claim is made when it meets the
requirements for such appraisement. In Nissho Iwai, 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 United
States purchaser. The court held that the price paid by the middleman to the
manufacturer was the proper basis for transaction value. The court further stated that in
order 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, supra. The importer claims
that the merchandise at issue should be appraised based upon the transaction value of
the sales between its middleman vendor, Lucky Zone, and Lucky Zone’s related factory
seller, DongGuan Lucky Zone.
We note that although an importer may request appraisement based on the price
paid by a middleman to a foreign manufacturer in situations where the middleman is not
the importer, 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 T.D. 96-87, 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
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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.
According to Nissho Iwai, in order for a transaction to be viable for transaction
value purposes, it must be a sale negotiated at arm’s length, free from any non-market
influences. There is a presumption that a transaction will meet this standard if the buyer
and seller are unrelated. If the parties are related, then it is necessary to provide
Customs with information which demonstrates that transaction value may be based on
the related party sale as provided in 19 U.S.C. § 1401a(b)(2)(B) (stating that the
circumstances of the sale indicate that the relationship did not influence the price or that
the transaction value closely approximates certain test values.) See T.D. 96-87, supra.
Bona Fide Sales for Exportation to the U.S.
In order for transaction value to be used as a method of appraisement, we must
determine if indeed a “sale between the parties had occurred. 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.
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 Letter (“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).
Based on the documentation presented to CBP, there is no question that the
merchandise manufactured at DongGuan Lucky Zone’s factory was clearly destined for
the United States. In order to have the imported merchandise appraised based on the
first sale, however, we must determine whether the transactions between Lucky Zone
as the middleman vendor and its related party factory seller, DongGuan Lucky Zone,
were bona fide sales, i.e., whether the middleman was an actual buyer/seller of the
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merchandise, and if so, whether the related parties conducted their transactions at an
arm’s length.
According to documentation submitted with this protest, Lucky Zone, as the
middleman vendor is supposed to assume the risk of loss and take title to the
merchandise at DongGuan Lucky Zone’s factory door based upon ex-factory terms.
The purchase orders from Dreamwear to Lucky Zone for the underlying merchandise
are “FOB Shenzen,” meaning that the risk of loss is supposed to pass from Lucky Zone
to Dreamwear when the goods are loaded onto the ship in Shenzen. However, there is
no indication from any of the documents submitted as to whether Lucky Zone ever
assumed the risk of loss and title to the goods from the factory door until the goods
were loaded onto the ship. Further, no documentation has between presented
regarding inland freight.
While Dreamwear did provide our office with a variety of documents, it did not
meet its burden of providing a complete paper trail as required by T.D. 96-87, even after
being accorded multiple opportunities to do so. Accordingly, it impossible to determine
whether the transactions between the middleman vendor, Lucky Zone, and the factory
seller, DongGuan Lucky Zone, constitute bona fide sales for exportation upon which
transaction value may be based.
Arm’s Length Transactions
If the parties are related, transaction value is only acceptable if the transaction
satisfies ones of two tests: (1) circumstances of the sale; or (2) test values. See 19
U.S.C. § 1401a(b)(2)(B); 19 C.F.R. § 152.103(l). In the instant protest, Dreamwear
does not dispute that the middleman vendor and factory seller are related. However,
Dreamwear argues that the transaction value based on the sales between the related
middleman vendor and factory seller is a proper method of appraisement based on the
circumstances of the sale test. We further note that there are no “test values” available
to us.
For the circumstances of the sale approach, CBP Regulations in 19 C.F.R. Part
152 set forth illustrative examples of how to determine if the relationship between the
buyer and the seller influences the price. See also HQ H029658, dated December 8,
2009; H037375, dated December 11, 2009; and, HQ H032883, dated March 31, 2010.
In this respect, CBP will examine the manner in which the buyer and seller organize
their commercial relations and the way in which the price in question was derived in
order to determine whether the relationship influenced the price. If it can be shown that
the price was settled in a manner consistent with the normal pricing practices of the
industry in question, or with the way in which the seller settles prices with unrelated
buyers, this will demonstrate that the price has not been influenced by the relationship.
See 19 C.F.R. § 152.103(l)(1)(i)-(ii). In addition, CBP will consider the price not to have
been influenced if the price was adequate to ensure recovery of all costs plus a profit
equivalent to the firm’s overall profit realized over a representative period of time. 19
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C.F.R. § 152.103(l)(1)(iii). These are examples to illustrate that the relationship has not
influenced the price, but other factors may be relevant as well.
In the instant protest, Dreamwear has failed to meet its burden in demonstrating
via documentary evidence that the transactions between Lucky Zone and DongGuan
Lucky Zone as related parties were negotiated at arm’s length. Dreamwear provided an
organizational chart describing the functions of the middleman vendor and the factory
seller, but this chart falls far short of setting forth detailed descriptions of the roles of
each of the parties involved in the multi-tiered transactions. Moreover, according to
Dreamwear, Lucky Zone and DongGuan Lucky are related to one another through
common family ownership, which raises further concerns regarding arm’s length
transactions.
Nevertheless, Dreamwear sought to demonstrate via the “all costs plus a profit”
methodology set forth in 19 C.F.R. § 152.103(l)(1)(iii) that the sales between the Lucky
Zone and DongGuan Lucky Zone qualify as arm’s length sales. In order to satisfy the
“all costs plus a profit” test, the price must be adequate to ensure recovery of all costs
plus a profit which 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. Here, Dreamwear
provided Lucky Zone and DongGuan Lucky Zone’s audited 2019 and 2020 profit and
loss statements. These profit and loss statements identify revenue generated from all
sales to Dreamwear in a given year by the related parties as opposed to sales of
merchandise of the same class or kind as the imported merchandise. Moreover, while
the profit and loss statements identify “profit for the year,” it is unclear whether this
refers to overall profit in sales of merchandise of the same class or kind or even whether
such profit solely refers to profit earned from sales to Dreamwear. 4 Accordingly, the
documentation submitted by Dreamwear does not substantiate that the price was
adequate to ensure the recovery of all costs plus a profit equivalent to the firm’s overall
profit realized over a representative period of time. We further note that under the
circumstances of the sales approach, Dreamwear did not provide any other evidence
indicating that the relationship between Lucky Zone and DongGuan Lucky Zone did not
affect the price paid or payable.
Based on the foregoing, we find that Dreamwear has not demonstrated the
merchandise at issue was purchased via bona fide sales whereby Lucky Zone, as the
middleman vendor, acted both as the buyer from DongGuan Lucky Zone, a related
factory seller, and as the seller to Dreamwear, the importer of record. We also find that
Dreamwear failed to meet its burden in demonstrating that the transactions between the
4
Among the documentation submitted by Dreamwear are financial statements for Lucky Zone and
DongGuan Lucky Zone for 2020. These financial statements are not limited to sales to Dreamwear. The
profit figures in the profit and loss statement for DongGuan Lucky Zone for 2020 match the net profit
realized by DongGuan Lucky Zone in its 2020 financial statement. Likewise, the profit figures in the profit
and loss statement for Lucky Zone for 2020 match what the 2020 financial statement for Lucky Zone
refers to as “profit for the year.” Because these 2020 financial statements are not limited to sales to
Dreamwear, we assume that the profit identified in the 2019 and 2020 audited profit and loss statements
are inclusive of profits realized over all of its sales. Accordingly, the profit identified in the 2019 and 2020
profit and loss statement are inadequate for satisfying the “all costs plus a profit” test.
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two related parties, Lucky Zone and DongGuan Lucky Zone, were negotiated at arm’s
length.
Because Dreamwear has failed to demonstrate that the sales between Lucky
Zone and DongGuan Lucky Zone were bona fide sales negotiated at arm’s length, we
will not address whether the costs declared to CBP at the time of entry included all
dutiable assists provided by Lucky Zone to DongGuan Lucky Zone.
HOLDING:
The protest should be DENIED. Appraisement of the merchandise should be
based upon the price paid by the importer.
You are instructed to notify the protestant 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, Director
Commercial Trade and Facilitation Division
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