OT:RR:CTF:VS H337689 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. 2704-23-164798; Dreamwear Inc.;
First Sale Valuation; Transaction Value
Dear Center Director,
This is in response to the Application for Further Review (“AFR”) of Protest No.
2704-23-164798, timely filed on February 22, 2023, by Sharretts, Paley, Carter &
Blauvelt, P.C., on behalf of their client, Dreamwear Inc. (“Protestant” or “Dreamwear”),
concerning the valuation of the subject merchandise.
We note that the subject protest involves the same importer, the same first sale
issue and some of the same middleman vendors and factory sellers as those addressed
in Headquarters Ruling Letter (“HQ”) H332358, dated June 4, 2025, which was issued
in response to the AFR of Protest No. 4601-23-134023. In both matters, Dreamwear
requested the opportunity for a conference with our office prior to issuing a decision.
Pursuant to this request, our office held a teleconference meeting on March 26, 2025,
with Dreamwear and their counsel.
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 ten entries of clothing that were entered between
January 4, 2019, and April 23, 2019, by Dreamwear, and liquidated on August 26, 2022.
The entries at issue all involve clothing produced in China, some of which were also
subject to multi-tiered transactions.
Non-First Sale Entry Lines
Dreamwear asserts that some of the non-first sale entry lines in this protest were
inadvertently included in U.S. Customs and Border Protection’s (“CBP”) reliquidation of
certain entries to disallow Dreamwear’s first sale claim. According to Dreamwear,
“[s]uch rate advances by Customs were based on the mistaken belief that these good
[sic] were entered at a reduced (first cost) value when they were actually entered at the
full transaction (Free on Board (“FOB”)) cost.” In support of this claim, Dreamwear
submitted the following documentation:
• A summary of the dutiable value paid by Dreamwear for the subject entry line(s)
• Dreamwear’s associated purchase order reflecting the agreed upon FOB value of
the subject merchandise.
• The arrival notice.
• The bill of lading.
• The CF 7501 presented at the time of entry.
• The commercial invoice from the vendor to show that the invoiced and declared
values are the same.
• The packing list.
• The receiving records.
• The proof of payment of the entered value.
These entries were rate advanced based on technical assistance provided to the
Apparel and Footwear Textiles Center of Excellence and Expertise (“CEE”) by CBP’s
Trade Regulatory Audit (“Regulatory Audit”).
First Sale Entry Lines
In connection with the protested entries, the importer, Dreamwear, purchased
clothing from four “middleman” vendors, Wuxi Xinhexin International Trade Co., Ltd.
(“Wuxi Xinhexin”); Lucky Zone Development Limited (“Lucky Zone”); Windus
Enterprises Shanghai Inc. (“Windus”); and All Success International Enterprise Limited
(“All Success”). The middleman vendors did not manufacture the clothing items, but
placed orders with a factory seller, some of which were related parties. For the
merchandise that Dreawear purchased from Wuxi Xinhexin, Wuxi Xinhexin placed
orders with a related factory seller, Wuxi Sanxing Textile Co. Ltd. (“Wuxi Sanxing”). For
the merchandise that Dreamwear purchased from Lucky Zone, Lucky Zone placed
orders with a related factory seller, DongGuan Lucky Zone Garments and Accessories
Co. Ltd. (“DongGuan Lucky Zone”). For the merchandise that Dreamwear purchased
2
from Windus, Windus placed orders with a seller that is purported to be unrelated,
Jiangyin Jinze Garment Co., Ltd. (“Jiangyin Jinze”). Lastly, for the merchandise that
Dreamwear purchased from All Success, All Success placed orders with a seller that is
purported to be unrelated, Brilliant HK Factory (Cambodia) Co. Ltd. (“Brilliant HK”).
Wuxi Xinhexin (middleman vendor)/Wuxi Sanxing (related factory seller)
According to counsel for Dreamwear, Wuxi Xinhexin and Wuxi Sanxing are
related by one common shareholder.
Counsel claims that the first sale valuation of the entries at issue based upon the
sales price between Dreamwear’s middleman vendor, Wuxi Xinhexin, and Wuxi
Sanxing, should have been used. CBP determined that because Dreamwear’s multi-
tiered import transactions involving Wuxi Xinhexin and Wuxi Sanxing 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 for Dreamwear provided various documents
concerning two representative transactions with Wuxi Xinhexin as the middleman
vendor and Wuxi Sanxing as the related factory seller. Some of the specific documents
include the following:
• An organizational chart identifying Wuxi Xinhexin as the middleman vendor and
Wuxi Sanxing as the related factory seller.
• Documents, some of which were not translated into English, 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, Wuxi Xinhexin, for
the underlying merchandise, under FOB Shanghai” sales terms.
o Wuxi Xinhexin’s purchase orders to Wuxi Sanxing, which were not translated
into English.
o Invoices from Wuxi Sanxing to Wuxi Xinhexin, which were not translated into
English, and a transaction value worksheet, which according to counsel for
Dreamwear, summarizes each first cost transaction and confirms that there
were no assists provided by the vendor to the factory.
o Invoices from Wuxi Xinhexin to Dreamwear.
In support of its claims of a bona fide sale between Wuxi Xinhexin as the
middleman vendor and Wuxi Sanxing as the related factory seller, counsel provided
proof of payment from Wuxi Xinhexin to Wuxi Sanxing in the form of untranslated bank
receipts. Counsel also provided Wuxi Xinhexin’s untranslated ledger recordings for the
underlying sales to support its claim of a bona fide sale between Wuxi Xinhexin and
Wuxi Sanxing.
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To show that there were no additional expenses that should have been included
in the first sale cost, counsel provided a copy of Wuxi Xinhexin’s chart of accounts.
To confirm that there were two independent sales at arm’s length, counsel
provided Wuxi Xinhexin and Wuxi Sanxing’s 2019 and 2020 profit and loss statements
for its revenue from orders from Dreamwear. Counsel asserts that this documentation
demonstrates that the factory earned a comparable profit to the middleman-parent
under the “all costs plus a profit” test set forth in 19 C.F.R. § 152.103(l)(iii).
Lucky Zone (middleman vendor)-DongGuan Lucky Zone (related factory seller)
We note that the multi-tiered transactions at issue between Lucky Zone as the
middleman vendor and DongGuan Lucky Zone as the related factory seller in the instant
protest are substantially similar to those addressed in HQ H332358, in response to an
AFR filed by Dreamwear regarding its first sale valuation of imported merchandise
purchased from Lucky Zone as the middleman vendor, which was produced by
DongGuan Lucky Zone.
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 involving Lucky Zone and DongGuan Lucky Zone did
not meet the requirements of T.D. 96-87, 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 for Dreamwear provided various documents
concerning two representative transactions with Lucky Zone as the middleman vendor
and DongGuan Lucky Zone as the related factory seller. Some of the specific
documents include the following:
• An organizational chart identifying Lucky Zone as the middleman vendor and
DongGuan Lucky Zone as the related factory seller.
• Documents, some of which were not translated into English, 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
summarizes the first cost transaction and confirms that the underlying
transaction involved raw materials (fabric, trims, and packaging) provided by
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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.
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 in the form of
untranslated bank receipts. 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.
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 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.
Windus (middleman vendor)-Jiangyin Jinze (unrelated factory seller)
According to counsel for Dreamwear, Windus and Jiangyin Jinze are not related.
Counsel for Dreamwear claims that the first sale valuation of the entries at issue based
upon the sales price between Dreamwear’s middleman vendor, Windus, and Jiangyin
Jinze, should have been used. CBP determined that because Dreamwear’s multi-tiered
import transactions involving Windus and Jiangyin Jinze did not meet the requirements
of T.D. 96-87, 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 seller.
In support of this protest, Counsel provided various documents concerning
several representative transactions with Windus as the middleman vendor and Jiangyin
Jinze as the unrelated factory seller. Some of the specific documents include the
following:
• An organizational chart confirming the functions of Windus as the middleman vendor
and Jiangyin Jinze as the factory seller;
• Documents, some of which were not translated into English, 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, Windus, for the
underlying merchandise, under FOB sales terms.
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o Windus’s purchase orders to Jiangyin Jinze, under “Free Carrier (FCA)
Designated Warehouse” terms.
o Invoices from Jiangyin Jinze to Windus, which were not translated into
English.
o A transaction value worksheet.
o A China export declaration.
o Invoices from Windus to Dreamwear, under “FOB Shanghai” terms.
o Documentation that Dreamwear purports to be proof of payment from Windus
to Jiangyin Jinze but which has not been translated into English.
o Recordation of Windus’s payment to Jiangyin Jinze in its general ledger. 1
All Success (middleman vendor)-Brilliant HK (unrelated factory seller)
According to counsel for Dreamwear, All Success and Brilliant HK are not
related. Counsel for Dreamwear claims that the first sale valuation of the entries at
issue based upon the sales price between Dreamwear’s middleman vendor, All
Success, and Brilliant HK, should have been used. CBP determined that because
Dreamwear’s multi-tiered import transactions involving All Success and Brilliant HK did
not meet the requirements of T.D. 96-87, 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 seller.
In support of this protest, counsel for Dreamwear provided various documents
concerning one representative transaction with All Success as the middleman vendor
and Brilliant HK as the unrelated factory seller. 2 Some of the specific documents
include the following:
• An organizational chart confirming the functions of All Success as the middleman
vendor and Brilliant HK as the factory seller.
• Documents, some of which were not translated into English, in support of
Dreamwear’s claim that the protested entries included a bona fide sale for export to
the United States, including the following:
o All Success’s purchase orders to Brilliant HK, under “Ex-Factory” terms.
o Invoices from Brilliant HK to All Success.
o A transaction value worksheet, which Dreamwear provided as a summary of
the first cost transaction and confirmation that the underlying transactions
involved raw material assists (fabric, trims, and packaging) that the vendor
provided to the factory free of charge.
o Proof of payment from All Success to Brilliant HK.
1
Dreamwear stated in its protest submission that it has included a copy of Windus’s chart of accounts to
show that there were no additional expenses that should have been included in the first cost, but this
document is missing from the submission and exhibits.
2
Counsel for Dreamwear explains that documentation for only one representative transaction was
provided because All Success represents only a small number of Dreamwear’s overall first sale
transactions.
6
While Dreamwear claims that it has included its purchase orders to All Success
for the underlying merchandise, these are missing from Exhibit 6. Dreamwear further
asserts that it provided All Success’ purchase, payment and freight records in order to
confirm the risk of loss assumed by All Success in its transactions with Brilliant HK and
to prove the accuracy of the assist costs declared at the time of entry. While Exhibit 6
appears to include purchase and payment documentation regarding trim and
accessories, much of these documents are not translated into English. Consequently,
we are unable to confirm the existence of the freight records.
The first sale entry lines described above were rate advanced based on technical
assistance provided to the CEE by Regulatory Audit based upon an audit completed on
March 12, 2021, in which Regulatory Audit determined that Dreamwear’s valuation of its
multitiered transactions did not meet the requirements of T.D. 96-87.
Based on the foregoing, Dreamwear 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. Dreamwear further asserts that this documentation demonstrates that the
rate advances for certain non-first sale entry lines were erroneous.
ISSUES:
(1) Whether certain entry lines based upon the transaction value between the
Protestant and a third-party unrelated vendor were erroneously rate
advanced.
(2) 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 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.
The term “price actually paid or payable” is defined as:
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[T]he total payment (whether direct or indirect, and exclusive of any costs,
charges, or expenses incurred for transportation, insurance, and related
services incident to the international shipment of the merchandise from the
country of exportation to the place of importation in the United States)
made, or to be made, for imported merchandise by the buyer to, or for the
benefit of, the seller.
19 U.S.C. § 1401a(b)(4)(A).
Non-First Sale Entry Lines
Dreamwear asserts that some entry lines that were not based on first sale
valuation were inadvertently included in CBP’s reliquidation of certain entries to disallow
the Protestant’s first sale claims. Dreamwear explains that such rate advances by CBP
were based upon what it describes as the mistaken belief that these goods were
entered at a reduced first sale valuation when they were actually entered at the full
transaction value based on the FOB price. In support of this claim, Dreamwear
submitted various documents referenced above.
Our office consulted with the CEE and Regulatory Audit to ascertain the
circumstances behind the rate advances of the non-first sale entry lines. The loss of
revenue for the protested entries was calculated on an entry-by-entry basis. The CEE
then prorated the undervaluation and loss of revenue for the protested merchandise on
an entry-by-entry basis for administrative purposes in the Automated Commercial
Environment (“ACE”). This was why some lines not claiming transaction value on a first
sale basis had to be amended to capture the total loss of revenue for each entry.
Although non-first sale entry lines were rate advanced, the total undervaluation and loss
of revenue calculations were accurate.
In HQ H082455, dated November 19, 2009, CBP found that a rate advance of a
single entry to reflect a value increase with regard to merchandise imported under other
entries was improper to the extent that it related to merchandise other than that covered
by the entry that was rate advanced. Nevertheless, CBP noted that payments may be
apportioned as long as the method of apportionment is reasonable and in accordance
with generally accepted accounting principles. In holding as such, CBP cited to Alyeska
Pipeline Co., v. United States, 10 CIT 510, 643 F. Supp. 1128 (CIT 1986), reh’g
granted, 11 CIT 931, 683 F. Supp. 817 (CIT 1987), which states as follows:
The law does not permit the Customs Service to assign to one entry the
values of merchandise in other entries or the duties owing on them. 19
U.S.C. § 1500 provides for separate, unitary appraisement....
It follows that the only proper value increase for the entry in question
would be one reflecting the value of the merchandise covered by that
entry and no other merchandise.
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Alyeska Pipeline, 10 CIT 510, 516. See also C.S.D. 83-39, 17 Cust. B. & Dec. 794
(1983); HQ 545264, dated August 12, 1994; HQ 546012, dated May 6, 1996; and HQ
546430, dated January 6, 1997. In the instant protest, because the proration of the loss
of revenue and undervaluation was done on an entry-by-entry basis, we find that the
rate advances, which included both first sale and non-first sale entry lines to account for
the loss of revenue and undervaluation, are allowable.
First Sale Entry Lines
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 and its factory seller.
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
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
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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 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 the factories of all four factory sellers, Wuxi Sanxing,
DongGuan Lucky Zone, Jiangyin Jinze, and Brilliant HK, were 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 each of the
middleman vendors and their factory sellers were bona fide sales, i.e., whether the
middleman was an actual buyer/seller of the merchandise. And in the case of Wuxi
Xinhexin and Lucky Zone as middleman vendors, we must also determine whether the
transactions with their related factory sellers were conducted at arm’s length.
With respect to the transactions involving Wuxi Xinhexin as the middleman
vendor, it is unclear which entity assumes the risk of loss because the purchase orders
10
between Wuxi Xinhexin and Wuxi Sanxing were not translated into English. The
purchase orders from Dreamwear to Wuxi Xinhexin for the underlying merchandise are
“FOB Shanghai,” meaning that the risk of loss is supposed to pass from Wuxi Xinhexin
to Dreamwear when the goods are loaded onto the ship in Shanghai. However, there is
no indication from any of the documents submitted as to whether Wuxi Xinhexin 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.
With respect to the transactions involving Lucky Zone as the middleman vendor,
Lucky Zone 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.
With respect to the transactions involving Windus as the middleman vendor,
Windus is supposed to assume the risk of loss and take title to the merchandise under
FCA terms upon delivery of the merchandise to the designated warehouse. The
purchase orders from Dreamwear to Windus for the underlying merchandise are under
FOB terms, meaning that the risk of loss is supposed to pass from Windus to
Dreamwear when the goods are loaded onto the ship. However, there is no indication
from any of the documents submitted as to whether Windus 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.
Lastly, with respect to the transactions involving All Success as the middleman
vendor, All Success is supposed to assume the risk of loss and take title to the
merchandise at Brilliant HK’s factory door based upon ex-factory terms. The purchase
orders from Dreamwear to All Success are missing from the protest submission;
therefore, we are unable to determine when the risk of loss passes from All Success to
Dreamwear. Moreover, there is no indication from any of the documents submitted as
to whether All Success 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.
Accordingly, it is impossible to determine whether the transactions between the various
middleman vendors (Wuxi Xinhexin, Lucky Zone, Windus, and All Succes), and the
corresponding factory sellers (Wuxi Sanxing, DongGuan Lucky Zone, Jiangyin Jinze,
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and Brilliant HK) 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 one 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, Windus,
Jiangyin Jinze, and Dreamwear are all unrelated parties, as are All Success, Brilliant HK
and Dreamwear. Therefore, the sale between these parties are presumed to be at
arm’s length. See HQ H295538, dated May 31, 2018 (stating that when the parties to a
transaction are unrelated, the sale between them is presumed to be at arm’s length).
On the other hand, Wuxi Xinhexin and Wuxi Sanxing are related, as are Lucky
Zone and DongGuan Lucky Zone. 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
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 well as the transactions between Wuxi Xinhexin and Wuxi Sanxing as
related parties were negotiated at arm’s length. Dreamwear provided an organizational
chart describing the functions of the middleman vendors and the factory sellers, 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.
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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 and the sales between Wuxi Xinhexin and Wuxi
Sanxing 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,
and Wuxi Xinhexin and Wuxi Sanxing’s 3 audited 2019 and 2020 profit and loss
statements. The profit and loss statements for Lucky Zone and DongGuan Lucky Zone
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. The profit and loss statements for Wuxi Xinhexin and Wuxi Sanxing
identify total profit from “main operations” 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 and the relationship between Wuxi
Xinhexin and Wuxi Sanxing 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 the middleman
vendors acted both as the buyers from the factory sellers, and as the sellers to
Dreamwear, the importer of record. We also find that Dreamwear failed to meet its
burden in demonstrating that the transactions between the related parties, Lucky Zone
3
The translated profit and loss statements purported to be for Wuxi Xinhexin refer to “Wuxi Xinhen
International Trade Co., Ltd.” For purposes of this protest, we presume that this is a mistranslation.
Similarly, the translated profit and loss statement purported to be for Wuxi Sanxing refer to “Wuxi
Samsung Textile Co., Ltd.” However, “Samsung” is crossed out by hand in a number of places and
replaced with a handwritten correction to “Sanxing.”
4
Among the documentation submitted by Dreamwear are financial statements for Lucky Zone and
DongGuan Lucky Zone for 2020, and profit and loss statements for Wuxi Xinhexin and Wuxi Sanxing for
2019 and 2020. These financial statements and profit and loss 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. Similarly, the profit identified in Wuxi
Xinhexin and Wuxi Sanxing’s profit and loss statements include total profit from its “main operations”
rather than sales of merchandise of the same class or kind as those at issue in the subject protest.
Accordingly, the profit identified in the 2019 and 2020 profit and loss statements are inadequate for
satisfying the “all costs plus a profit” test.
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and DongGuan Lucky Zone, and Wuxi Xinhexin and Wuxi Sanxing, 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. Moreover, because
Dreamwear has failed to demonstrate that the sales between All Success and Brilliant
HK were bona fide sales, we will not address whether the costs declared to CBP at the
time of entry included all dutiable assists provided by All Success to Brilliant HK.
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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