OT:RR:CTF:VS H334534 JMV/AP
Center Director
Electronics Center of Excellence and Expertise
U.S. Customs and Border Protection
Los Angeles Service Port
301 E. Ocean Blvd.
Long Beach, CA 90802
RE: Application for Further Review of Protest No. 2720-23-104963; E-cigarettes; Valuation
under 19 U.S.C. § 1401a
Dear Center Director:
This is in response to the Application for Further Review (“AFR”) of Protest No. 2720-
23-104963, timely filed on behalf of the importer Flumgio Technology Limited (the
“protestant”) concerning the appraisement of electronic cigarettes under 19 U.S.C. § 1401a. On
December 23, 2024, importer’s counsel notified our office that the importer was no longer
interested in holding a meeting on this matter.
FACTS:
From August 18, 2022 to October 27, 2022, the importer filed multiple entries of pre-
filled disposable electronic cigarettes marketed under the brand name “Flum.” 1 The importer,
located in Hong Kong, China, purchased the goods from Hong Kong Senran Technology Co.
Ltd. (“Senran” or “manufacturer”), also located in Hong Kong. The merchandise was shipped
from China and South Korea. The consignee was the final U.S. customer. All parties were
unrelated.
According to the protest, the importer advised the manufacturer that the goods were
destined for the United States and the manufacturer coordinated the logistics of shipping the
subject goods to the United States with Free on Board (“FOB”) terms of sale, which are specific
to ocean and inland waterway transport, and are not applicable for air transport. The importer
asserts that it was never in possession of the goods.
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For more information, see https://flumgio.com/ (last visited Mar. 5, 2025).
When the importer was ready to place an order, it used group chats in WeChat to convey
the product description, quantity and terms of a transaction. Price negotiations were usually
verbal, but payments between business users were made through WeChat-linked bank accounts.
After the importer and the manufacturer agreed on the value of the goods and terms of sale, the
manufacturer produced the goods for the importer and generated a proforma invoice.
On December 19, 2022, U.S. Customs and Border Protection (“CBP”) issued a Request
for Information (CBP Form 28) requesting for 122 entries “legible and clear Entry packet,
Invoices, Product details and clear Product description/literature.”
On January 13, 2023, the importer, through its customs broker, notified the Electronics
Center of Excellence and Expertise (“CEE”) in writing that “all Flum shipments contain[ed] the
same products” and supplied product descriptions and pictures of Flum disposable e-cigarettes.
On January 30, 2023, CBP issued a Notice of Action (CBP Form 29) reclassifying all
declared items as e-cigarettes under subheading 8543.40.0040, Harmonized Tariff Schedule of
the United States Annotated (“HTSUSA”), 2 which was subject to additional 25 percent duties
under subheading 9903.88.02, HTSUS. The notice also notified the importer that the
merchandise should be appraised based on the “wholesale value per piece net packed” and that
“[i]tems were also found to be misdescribed on the commercial invoices of some of the entries.
They were reclassified as atomizer devices.”
On March 7, 2025, the CEE explained that the prices listed on the entry summary
package invoices ($1.52 per device) were undervalued and determined the proper values based
on the number of puffs each device contained. The appraised value was $3.83 per disposable
small vape (up to 2500 puff average) and $6.18 per disposable large vape (5000 plus puff
average). If the CEE was unable to determine the number of puffs, it used the lowest value of
$3.83 per atomizer.
The importer now asserts that the custom broker’s response resulted from
miscommunication caused by a language barrier, and in addition to e-cigarettes five of the
entries also included promotional items such as “carton, postcards, stickers, key chains, hats,
brochures, t-shirts, pens, clothing articles, canvas bags, clothes, and lanyards.” However, the
importer did not prove that these items were part of the shipments. The importer provided
images, WeChat order screenshots, bank wire transfers, pro forma invoices, commercial
invoices, packing lists, air waybills, cargo release results, and a signed letter outlining the supply
and purchase practices of the importer implemented after the entries subject to this Protest/AFR
were filed.
ISSUE:
What is the proper method of appraisement for the entered merchandise?
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Subheading 8543.40.0040, HTSUSA, provides for “Electrical machines and apparatus, having individual
functions, not specified or included elsewhere in this chapter; parts thereof: Electronic cigarettes and similar
personal electric vaporizing devices: Other.”
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LAW AND ANALYSIS:
This matter is protestable under 19 U.S.C. § 1514(a)(1) as a decision on the value of
merchandise. The protest was timely filed on June 26, 2023, within 180 days of liquidation for
the first entry on January 27, 2023. See Miscellaneous Trade and Technical Corrections Act of
2004, Pub. L. 108-429, § 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. § 1514(c)(3)
(2006)). Further review of this protest is properly accorded to the importer pursuant to 19 C.F.R.
§ 174.24(b) because the issues protested involve questions of law or fact, which have not been
ruled upon.
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, codified at 19
U.S.C. § 1401a. The primary method of appraisement is transaction value. Transaction value is
the “price actually paid or payable for the merchandise when sold for exportation to the United
States” plus certain statutorily enumerated additions under 19 U.S.C. § 1401a(b)(1)(A)-(E).
Unless there is a bona fide sale of merchandise for exportation to the United States, the
transaction value method cannot be used.
In VWP of America, Inc. v. United States, 175 F.3d 1327 (Fed. Cir. 1999), the court 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, 62 C.C.P.A. 25, 33,
505 F.2d 1400, 1406 (1974)). 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 importer and the manufacturer are unrelated, the sale between them is presumed
to be at arm’s length. Further, the importer has shown that the sale between itself and the
manufacturer is a sale for export to the United States since the goods were shipped directly from
China and Korea to the United States. 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 Letter (“HQ”) 545474,
dated Aug. 25, 1995 (examining the circumstances of the transaction when considering whether
the parties functioned as buyer and seller).
We find that the importer has not sufficiently demonstrated that it was not functioning as
a buyer and seller with the manufacturer. While the importer provided the WeChat order
screenshots, wire transfers, and proforma invoices between itself and the manufacturer, it
remains unclear whether the importer assumed the risk of loss and received title to the imported
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merchandise. The importer asserts it was never in possession of the goods and the manufacturer
coordinated the shipping logistics to the United States. The proforma invoices from the
manufacturer include the “FOB price.” The importer states that the Incoterms were FOB but
does not specify whether they were FOB “place of shipment” or “place of destination.”
However, FOB cannot be the correct Incoterm in this transaction because the submitted air
waybills indicate that the merchandise was shipped from China and Korea by air and FOB is not
applicable to air transportation. Even if FOB were the correct Incoterm, the importer has not
indicated whether the FOB term of sale was a “shipment” or “destination” contract. 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.
Since the importer cannot demonstrate that it received title or risk of loss, we cannot
conclude that the transactions between the manufacturer and the importer were bona fide sales
and transaction value based on the price paid by the importer cannot be used to appraise the
merchandise.
Furthermore, we are unable to use transaction value based on the price paid or payable by
the final U.S. customer because the terms of sale involving the U.S. customer are unclear, and
the importer has not submitted proof of payment by the final U.S. customer. Therefore, we agree
with the CEE’s finding that CBP may not use transaction value to appraise the merchandise.
When imported merchandise cannot be appraised based on transaction value, it is appraised in
accordance with the remaining methods of valuation, applied in hierarchical order. See 19
U.S.C. § 1401a(a)(1).
The second method of appraisement is the transaction value of identical or similar
merchandise. See 19 U.S.C. § 1401a(c). This method refers to a previously accepted transaction
value of identical or similar merchandise that was exported at or about the same time as the
merchandise being valued. Since no sales of identical or similar merchandise exist, the
transaction value of identical or similar merchandise would not be the appropriate basis of
appraisement.
If transaction value of identical or similar merchandise cannot be determined, then the
customs value will be based upon deductive value, unless the importer has elected computed
value, which is not the case here. Deductive value under 19 U.S.C. § 1401a(d) is based upon the
resale price in the United States. We have no information regarding the resale of the
merchandise in the United States. Thus, deductive value is not available.
The computed value method is the next method of appraisement, and it is based upon,
among other things, information regarding the cost of materials, processing, profit, and general
expenses. See 19 U.S.C. § 1401a(e). Absent such information, computed value is not available
either.
When the value of imported merchandise cannot be determined under the methods set
forth in 19 U.S.C. §§ 1401a(b)-(e), it may be appraised based on a value derived from one of
those methods, reasonably adjusted to the extent necessary to arrive at a value. This is known as
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the “fallback” valuation method under 19 U.S.C. § 1401a(f). Certain limitations exist under this
method – merchandise may not be appraised based on the price in the domestic market of the
country of export, the selling price in the United States of merchandise produced in the U.S.,
minimum values, or arbitrary or fictitious values.
Under Section 500 of the Tariff Act of 1930, as amended, which constitutes CBP’s
general appraisement authority, codified in 19 U.S.C. § 1500(a), the appraising officer may:
[F]ix the final appraisement of merchandise by ascertaining or estimating the value
thereof, under section 1401a of this title, by all reasonable ways and means in his
power, any statement of cost or costs of production in any invoice, affidavit,
declaration, other document to the contrary notwithstanding[.]
The Statement of Administrative Action (“SAA”), H.R. Doc. No. 153, 96 Cong., 1st
Sess. Pt 2, reprinted in Department of Treasury, Customs Valuation under the Trade Agreements
Act of 1979 (Oct. 1981), at 67, which forms part of the legislative history of the TAA, provides,
in relevant part:
Section 500 is the general authority for Customs to appraise merchandise. It is not
a separate basis of valuation and cannot be used as such. Section 500 allows
Customs to consider the best evidence available in appraising merchandise. It
allows Customs to consider the contract between the buyer and seller, if available,
when the information contained in the invoice is either deficient or is known to
contain inaccurate figures or calculations … Section 500 authorize [sic] the
appraising officer to weigh the nature of the evidence before him in appraising the
imported merchandise. This could be the invoice, the contract between the parties,
or even the recordkeeping of either of the parties to the contract … In those
transactions where no accurate invoice or other documentation is available, and the
importer is unable, or refuses, to provide such information, then reasonable ways
and means will be used to determine the appropriate value, using whatever evidence
is available, again within the constraints of section 402.
Title 19, C.F.R. § 152.107 provides:
(a) Reasonable adjustments. If the value of imported merchandise cannot be
determined or otherwise used for the purposes of this subpart, the imported
merchandise will be appraised on the basis of a value derived from the methods set
forth in §§ 152.103 through 152.106, reasonably adjusted to the extent necessary to
arrive at a value. Only information available in the United States will be used.
(b) Identical merchandise or similar merchandise. The requirement that identical
merchandise, or similar merchandise, should be exported at or about the same time
of exportation as the merchandise being appraised may be interpreted flexibly.
Identical merchandise in any country other than the country of exportation or
production of the merchandise being appraised may be the basis for customs
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valuation. Customs valuation of identical merchandise, or similar merchandise,
already determined on the basis of deductive value or computed value may be used.
In HQ H119455, dated Feb. 16, 2011, CBP could not rely on the documents presented by
the importer to determine the transaction value of the imported merchandise, and did not have
sufficient information to apply a valuation method other than fallback. CBP appraised under 19
U.S.C. § 1401a(f) based on reasonable adjustments to the transaction value of similar
merchandise under 19 U.S.C. § 1401a(c).
Here, transaction value cannot be used, and the CEE went down the hierarchy of
appraisement methods and used “reasonable ways and means” under fallback to determine the
value of the e-cigarettes based on their “wholesale value per piece net packed.” The price on the
entry summary package invoices was $1.52 per device. CEE concluded the e-cigarettes were
undervalued and determined the wholesale value using prices found on the Internet based on the
number of puffs each device contained ($3.83 per atomizer for up to 2,500 puffs and $6.18 per
atomizer for more than 5,000 puffs). When the CEE was unable to determine the number of
puffs, the CEE used the lowest value ($3.83 per atomizer). This is consistent with CBP’s
authority under 19 U.S.C. §§ 1401a(1)(F) and a(f), and 19 U.S.C. § 1500. Since the customs
broker confirmed that all shipments consisted of e-cigarettes and we are unable to verify that
other items were part of five shipments as claimed, the CEE reclassified all items as e-cigarettes.
HOLDING:
This protest should be denied. The e-cigarettes should be appraised under the fallback
method set forth in 19 U.S.C § 1401a(f) based on their “wholesale value per piece net packed.”
You are instructed to notify the protestant, through counsel, 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 and Trade Facilitation Division
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