OT:RR:CTF:VS H340345 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. 2720-23-104854; 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-
23-104854, timely filed on behalf of the importer Shenzhen Joecig Technology Co. (the
“protestant”) concerning the appraisement of electronic cigarettes under 19 U.S.C. § 1401a.
FACTS:
From May 18, 2022 through July 19, 2022, the importer filed 10 entries of e-cigarettes.
The protestant in Shenzhen, China, was the foreign manufacturer, shipper, and importer. The
goods were shipped by air. The enclosed air waybills indicate that Incheon International Airport
in Seoul, South Korea was the airport of departure and Los Angeles was the airport of
destination. Baylabs, Inc. (“Baylabs”) in California and Performance Plus Marketing, Inc.
(“Performance Plus”) in Delaware were the ultimate consignees. The protestant states that all
parties are unrelated.
The sales between the importer and its U.S. customers Baylabs and Performance Plus
were governed by vendor agreements signed on May 1, 2022, in which the parties agreed to a
price of $.35 per unit “after performance plus sold out.” According to the bill of materials for the
various types of e-cigarettes, the cost of the e-cigarettes ranged from $1.48 to $1.72 per piece.
The U.S. customers sent a purchase order to the importer/manufacturer who, in turn, supplied the
e-cigarettes and issued an invoice. The purchase orders from the U.S. customers were identical
and stated, “Payment term: pay by sell (180-270 days), Deep on sell.” The invoices from the
manufacturer did not include Incoterms and payment terms, and indicated that payment was due
to another entity, Joecig Technology (HK) Co., Limited in Hong Kong (“HK beneficiary”).
Despite a 15-hour time difference between Shenzhen, China and Los Angeles, CA (Shenzhen is
15 hours ahead), some of the purchase orders, invoices, and packing lists were issued on the
same day. For instance, Performance Plus in California issued a purchase order to the protestant
in China on May 13, 2022, who then issued an invoice and a packing list to Performance Plus on
May 13, 2022. The total entered value was $274,680. On July 26, 2022, Performance Plus paid
$68,320 to the HK beneficiary. On November 9, 2022, Baylabs paid $206,360 to the HK
beneficiary.
On August 5, 2022, U.S. Customs and Border Protection (“CBP”) issued a Request for
Information (CBP Form 28) for 10 entries asking for “legible and clear invoices, entry packet,
color photos, product details and clear product description/literature for all products.” The
importer’s response was due by September 4, 2022. The Electronics Center of Excellence and
Expertise (“CEE”) did not receive a response from the importer by September 4, 2022. On
September 9, 2022, the importer uploaded into CBP’s Document Image System (“DIS”) the
commercial invoice, packing list, air waybill, and entry summary for one entry.
On September 30, 2022, CBP issued a Notice of Action (CBP Form 29) reclassifying all
declared items as e-cigarettes under subheading 8543.40.0030, Harmonized Tariff Schedule of
the United States Annotated (“HTSUSA”), 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
“CBP corrected the value of the goods to $3.83-$5.06 per piece based on CBP research and
industry standards.”
On March 25, 2025, the CEE explained that the price listed on the entry summary
package invoices ($.35 per e-cigarette device) was undervalued and that the CEE determined the
proper values based on the number of puffs each device contained. The appraised value was
3.83-$5.06 per piece based on the number of puffs of similar or identical e-cigarettes sold on the
Internet.
The protestant asserts that the $.35 per unit price should be used to determine the price
actually paid or payable at time of entry under transaction value and that it represents a discount
or price adjustment. According to the protest, due to poor market conditions for e-cigarettes, the
consignees renegotiated the unit price ($.35/unit) of the e-cigarettes and agreed to longer
payment terms of 180-270 days.
ISSUE:
What is the proper method of appraisement for the entered merchandise?
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 April 5, 2023, within 180 days of liquidation for
the entries on October 7, 2022. See Miscellaneous Trade and Technical Corrections Act of 2004,
2
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 preferred 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
(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/foreign manufacturer and the U.S. customers are unrelated, the sale
between them is presumed to be at arm’s length. We must next consider whether there was a
sale for exportation to the United States. For a sale for exportation to exist, the protestant needs
to establish that at the time the buyer purchased the imported merchandise, it was “clearly
destined for the United States.” See Nissho Iwai Am. Corp. v. United States, 16 CIT 86 (1992),
rev’d in part, 982 F.2d 505 (Fed. Cir. 1992) and Synergy Sport Int’l, Ltd. v. United States, 17
CIT 18 (1993). It is presumed that merchandise shipped to a foreign location is not sold for
export to the United States and to rebut this presumption the protestant must present sufficient
evidence to show that the merchandise is clearly destined for export to the United States at the
time of sale to the buyer. See HQ 563420, dated Apr. 14, 2006. While the e-cigarettes
originated in China, the air waybills reveal that the manufacturer did not ship them directly from
the factory in China to the United States. Rather the documentation indicates that the subject
merchandise departed for the United States from South Korea. The protestant has not provided
any information on the movement of the merchandise from China to South Korea. None of the
purchase orders, invoices and packing lists indicate that the e-cigarettes moved under bond from
China to South Korea, bore the logo of the U.S. purchaser, and met any special U.S. labeling
requirements. Therefore, the protestant has not refuted the possibility that a contingency of
diversion into the commerce of South Korea existed.
Further, the manufacturer/importer has not sufficiently demonstrated that it was
functioning as a bona fide seller with the U.S. customers. While the manufacturer provided
purchase orders and invoices between itself and the U.S. customers, some of them were issued
on the same day, did not contain Incoterms, and the payment terms were 180-270 days. The
vendor agreements do not reveal when the U.S. customers assumed the risk of loss and received
title to the imported goods. Therefore, we cannot conclude that the transactions between the
importer and U.S. customers were bona fide sales for exportation to the United States and
3
transaction value cannot be used to appraise the merchandise. We must appraise the goods 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.
Next, we consider 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 and cannot use deductive value. The computed value is based upon, among
other things, information regarding the cost of materials, processing, profit, and general
expenses. See 19 U.S.C. § 1401a(e). In the absence of this information, computed value is not
available.
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
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 United
States, 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
4
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
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 did not have sufficient information to apply a
valuation method other than fallback. CBP appraised the goods 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 $.35 per device, while per the bill of materials for the
particular types of e-cigarettes, the cost of the e-cigarettes ranged from $1.48 to $1.72 per piece.
The CEE concluded that the e-cigarettes were undervalued and determined the wholesale value
using prices of similar/identical e-cigarettes found on the Internet ranging from $3.83-$5.06 per
atomizer based on the number of puffs each device contained. This is consistent with CBP’s
authority under 19 U.S.C. §§ 1401a(1)(F) and a(f), and 19 U.S.C. § 1500.
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” as
explained.
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
5
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
6