OT:RR:CTF:VS H360736 AP
Center Director
Apparel, Footwear and Textiles CEE
U.S. Customs and Border Protection
1100 Raymond Blvd.
Newark, NJ 07102
RE: Internal Advice Request; Valuation of Crop Bailing Products; Related Parties
Dear Center Director:
This is in response to a letter dated May 29, 2020 and supplemental submissions filed
through May 1, 2026, on behalf of Cordex North America, Inc. (“Cordex NA” or “U.S.
importer”), seeking a prospective ruling concerning the proper appraisement of net wrap,
polypropylene baler twine and sisal bale binder (collectively “crop bailing products”) produced
in and imported from Portugal. As entries have been filed since 2016, this prospective ruling
request will be processed as an internal advice decision. On March 26, 2025, our office, together
with U.S. Customs and Border Protection’s (“CBP”) Trade Regulatory Audit (“TRA”) and the
Apparel, Footwear and Textiles Center of Excellence and Expertise (“CEE”), held a conference
with importer’s counsel.
The importer requested that certain information submitted in connection with this request
be treated as confidential. Inasmuch as this request conforms to the requirements of 19 C.F.R.
§ 177.2(b)(7), the request for confidentiality is approved. The information contained within
brackets in italics and all attachments to this request will not be released to the public and will be
withheld from published versions of this decision.
FACTS:
The U.S. importer’s parent company, Cordex SGPS, known as the Cordex Group, is
headquartered in Portugal and engages in the manufacture and distribution of cord, twine, rope,
and related products intended for agricultural, aquatic and various industrial uses. The U.S.
importer serves as the North American master distributor for the Cordex Group’s cordage
business. During the years 2016 to 2021, the U.S. importer purchased net wrap, polypropylene
baler twine and sisal bale binder from its related Portuguese manufacturers, Cordex – Companhia
Industrial Textil, S.A. (“Cordex CIT”) and Cordenet - Produtora de Redes Agricolas, S.A.
(“Cordenet”) who did not sell to unrelated buyers in the United States. 1 After a restructuring in
2022, Cordex CIT and Cordenet now operate as one entity under the name Cordex CIT, and the
U.S. importer Cordex NA purchases net wrap, polypropylene baler twine and sisal bale binder
from Cordex CIT. The U.S. importer’s primary responsibilities in the North American market
include local market research and marketing campaigns, local sales, placement of orders with the
manufacturer, and warehousing and stock management of purchased merchandise in the United
States until customers are ready for delivery.
The importer entered 1,920 bales of baler twine (gross weight 20,095 kg) with a total
entered value of $[X] (approximately $[X] per kilogram) on February 17, 2016, the selected
walkthrough entry. Both the purchase order from the U.S. importer and the invoice from the
manufacturer Cordex CIT showed 1,920 bales of baler twine. According to the invoice from
Cordex CIT, the Delivered Duty Paid (“DDP”) value of the bales was $[X] and the free on board
(“FOB”) value was $[X]. Freight and Clearance charges were deducted from the DDP value to
arrive at the FOB value reported to CBP. The terms of the sale were “DDP [X].” The risk of
loss transferred from the manufacturer to the importer when the goods were available for
unloading at the U.S. port. The importer paid the full amount to the manufacturer over two wire
transfers initiated on June 3, 2016. The first wire payment was released on June 8, 2016, and a
second wire transfer payment on June 9, 2016. The sea waybill revealed that the port of loading
was “[X], Portugal” and the port of discharge was “[X], U.S.” TRA conducted an audit for this
entry and the other entries filed from January 1, 2016 through December 31, 2016, and
concluded that “Cordex was unable to substantiate the circumstances of sale test, specifically
arm’s length transaction between related parties” and recommended that Cordex seek guidance
from our office regarding the appropriate basis of appraisement of the imported merchandise.
As part of this internal advice request, the U.S. importer submitted distribution
agreements between Cordex CIT and itself, and between Cordenet and itself effective October 1,
2010, and transfer pricing reports for itself, Cordenet and Cordex CIT for fiscal year 2016
prepared by PricewaterhouseCoopers (“PwC”) in Portugal. Pursuant to the supplied Distribution
Agreements with Cordex CIT and Cordenet, the goods are shipped per orders placed by the U.S.
importer, which set forth the product type and quantity, as well as the desired delivery date. The
U.S. importer may cancel or reschedule orders. The purchase price between the U.S. importer
and the Portuguese manufacturer is set at the beginning of the products campaign season, which
runs from October to September. The prices are determined based on the total budgeted
production costs to which is added a targeted arm’s length margin as determined by Cordex
Group’s sales teams and agreed with the U.S. importer on a yearly basis and delivery costs. The
“Total Budgeted Production Costs” are “all normal and necessary cost of goods and operating
expenses of [Cordex CIT and Cordenet] in connection with the manufacture of the Products.”
The “Targeted Arm’s Length Margin” are the “targeted gross margins determined by [the
manufacturers’] sales team which are benchmarked on an annual basis against margins earned by
other companies selling similar goods.” The manufacturers invoice the U.S. importer for the
purchase price amount when products are shipped. The U.S. importer pays the full amount of
the purchase price on May 31 of each year, unless otherwise agreed by the parties, and payment
1
The importer purchased net wrap from Cordenet and polypropylene baler twine and sisal bale binder from Cordex
CIT. Cordenet was dedicated to the production of natural and synthetic yarns and ropes while Cordex CIT was
dedicated to the production of agricultural mesh.
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is made by direct bank transfer to the payee’s bank account or by debit or credit to the party’s
intercompany account.
The PwC Transfer Pricing Study for the U.S. importer for fiscal year 2016 evaluated the
arm length’s nature of the U.S. importer Cordex NA’s intercompany transactions with
Cordenet/Cordex CIT. The analysis was based on the Organization for Economic Cooperation
and Development (“OECD”) Guidelines and was not binding upon the tax authorities or the
courts. The agreed upon Incoterms between the U.S. importer and the two Portuguese
manufacturers in 2016 were DDP. The pricing methodology used was a resale price minus a
gross margin of at least 7 percent for the distribution company. The arm’s length range of the
gross adjusted margin achieved by Cordex CIT with 27 “independent master distributors”
engaged in in the manufacture of cordage, rope, twine and netting was [X] percent to [X] percent,
with a median of [X] percent. The lower quartile was [X] percent and the upper quartile was [X]
percent. The gross adjusted margin of the U.S. importer in operations with Cordex CIT was [X]
percent and was outside the inter-quartile range. The arm’s length range of the gross adjusted
margin achieved by Cordenet with 27 “independent master distributors” engaged in manufacture
of cordage, rope, twine and netting was [X] percent to [X] percent, with a median of [X] percent.
The lower quartile was [X] percent and the upper quartile was [X] percent. The gross adjusted
margin of the U.S. importer in the operations with Cordenet was [X] percent and was outside the
inter-quartile range.
In its supplemented arm’s length analysis submitted on November 9, 2023, the importer
identified eight comparable companies in Portugal engaged in the manufacture of cordage and
twine related to agriculture business. Full cost mark up (“FCM”) (defined as the operating
profit/loss over total production costs) was selected as the appropriate profit level indicator
(“PLI”). Cordenet’s FCM of [X] percent and Cordex CIT’s FCM of [X] percent in 2016 were
above the inter-quartile range of [X] percent to [X] percent for the same year. The U.S. importer
notes that Cordenet’s net wrap is a “novel product with unique capabilities that currently
commands substantial market demand and is subject to less competition in the market than the
more routine products manufactured and sold by Cordex CIT, therefore, Cordenet can earn a
higher margin for this product than Cordex CIT earns for its products” and cordage and twine
manufacturing specifically geared for agriculture is a “highly competitive niche market with a
small number of prominent players.”
The U.S. importer does not have an Advance Pricing Agreement (“APA”) with the
Internal Revenue Service (“IRS”).
During the March 26, 2025 conference, CBP notified the importer, through its counsel,
that the merchandise may not be appraised using transaction value because the sale between the
related parties was not at arm’s length based on the submitted documentation. On May 1, 2026,
the importer provided additional documentation seeking to appraise the merchandise under
computed value. The importer submitted an audited financial statement for 2024 reflecting that
the manufacturer Cordex CIT realized €[X] in sales in 2024 in connection with its global
production. The manufacturer’s global sales included the cost of goods sold (€[X]) and
fabrication, general expenses and profit (€[X]). The cost of goods sold included the
manufacturer’s raw materials acquisition costs. The fabrication, general expenses and profit
included the manufacturer’s manufacturing costs and sales, general and administrative expenses
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(“SGA”) incorporating depreciation and amortization expense, sales costs, general and
administrative costs, and operating profits. According to the audited financial statement, the
manufacturer realized a [X] percent operating profit in 2024 and the U.S. importer Cordex NA
imported approximately [X] percent of the product (€[X]) Cordex CIT manufactured. For
purposes of illustration, the importer has provided the bill of materials and invoices from raw
materials in connection with the production of baler twine manufactured by Cordex CIT and
imported by the U.S. importer Cordex NA in 2024. The total raw material costs for the
imported baler twine were €[X]/unit, the manufacturing costs, general expenses and profit per
kilogram amounted to €[X]/unit or approximately [X] percent above raw material costs, and the
total unit price was €[X] (approximately $[X]). According to the importation date provided by
the importer, the total entered value declared on March 2, 2024 for [X] kg of baler twine was
$[X] and the computed value was $[X]. The importer provided importation data for 2023 and
2024 including the entry number, export date, entry date, entry line, entered value, quantity, unit
of measure, original duty, computed value per kilogram in Euro, total computed value in Euro,
CBP quarterly exchange rate, and computed value in USD.
The importer was not a participant in CBP’s Reconciliation Program during 2016-2024
and did not flag the entries for reconciliation at the time. The importer has since joined CBP’s
Reconciliation Program.
ISSUE:
What is the proper appraisement method for the subject merchandise?
LAW AND ANALYSIS:
Merchandise imported into the United States is appraised for customs purposes in
accordance with Section 402 of the Tariff Act of 1930, as amended by the Trade Agreements Act
of 1979 (TAA; 19 U.S.C. § 1401a). The primary method of appraisement is transaction value,
which is defined as “the price actually paid or payable for the merchandise when sold for
exportation to the United States,” plus amounts for certain statutorily enumerated additions to the
extent not otherwise included in the price actually paid or payable. See 19 U.S.C. § 1401a(b)(1).
When transaction value cannot be applied, the appraised value is determined based on the other
valuation methods in the order specified in 19 U.S.C. § 1401a(a). To use transaction value, there
must be a bona fide sale for exportation to the United States.
Here, TRA, the CEE, and the importer agree that a bona fide sale exists between the
related parties. The merchandise was shipped directly from Portugal to the United States.
Consideration was exchanged for the merchandise being sold. A review of the terms of sale and
the evidence presented in the submission indicate that title to the merchandise and risk of loss
shifted from the manufacturer to the U.S. importer when the goods were unloaded at the U.S.
port. Since there is no mention regarding the passage of title, title passed with the risk of loss
based on the Incoterms. See Headquarters Ruling Letter (“HQ”) H268741, dated Feb. 27, 2018.
The first wire payment was released on June 8, 2016, and a second wire transfer payment on
June 9, 2016.
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Special rules apply when the buyer and seller are related parties, as defined in 19 U.S.C.
§ 1401a(g), to ensure that the relationship between the parties does not affect the price.
Transaction value between a related buyer and seller is acceptable only if the transaction satisfies
one of two tests: (1) circumstances of sale, or (2) test values. See 19 U.S.C. § 1401a(b)(2)(B).
“Test values” refer to values previously determined pursuant to actual appraisements of imported
merchandise. In this instance, all parties agree that the transactions involve related parties. No
information is available regarding previously accepted test values. Thus, the “circumstances of
the sale” approach must be used to determine the acceptability of transaction value.
Under the “circumstances of the sale” test, CBP looks for evidence showing that the
parties’ relationship did not affect the price paid or payable. All relevant aspects of the
transaction are analyzed including the way the buyer and seller organize their commercial
relations and the way in which the price was determined. The regulations, as set out in 19 C.F.R.
§ 152.103(l), provide three illustrative examples that demonstrate that a relationship did not
influence the price: (i) the price was settled in a manner consistent with the normal pricing
practices of the industry in question; (ii) the price was settled in a manner consistent with the
way the seller settles prices for sales to buyers who are not related to it; or (iii) the price is
adequate to ensure recovery of all costs plus a profit that is equivalent to the firm’s overall profit
realized over a representative period of time in sales of merchandise of the same class or kind.
These are examples to illustrate situations where the relationship has not influenced the price,
and other factors may be considered based on the totality of the information including the way in
which the importer and the related manufacturers organize their commercial relations and the
way in which the price was arrived at. See HQ H219515, dated Oct. 11, 2012.
The U.S. importer claims that its pricing practices are based on the pricing practices of
the industry. The U.S. importer asserts that the cordage and twine industry, specifically for
agriculture, is a niche market with few prominent players and CBP should consider the totality of
the circumstances and especially that in a down year a seller that takes on more risk is likely to
experience a larger hit to their margins, but in a good year they are also more likely to experience
higher profits. The importer has selected unrelated companies engaged in the manufacture of
cordage, rope, twine and netting, and compared the net cost plus margins (“NCPM”) of Cordex
CIT and Cordenet in relation to these companies. Cordenet earned an NCPM of [X] percent and
Cordex CIT earned an NCPM of [X] percent, which were above the higher interquartile range of
[X] percent earned by manufacturers of similar products in the same industry.
The importer also states that in addition to the benchmarking results in the transfer
pricing study, the terms of the distribution agreements and terms of the transactions further
indicate that the importer and the two related manufacturers engaged in commercial activities as
if they were unrelated and consistent with the normal practices within the industry. For instance,
goods were shipped pursuant to orders placed by the importer setting forth the product type and
quantities, the manufacturers bore the transportation and handling costs and the transportation
insurance, the importer bore full market risk, credit risk and inventory risk, the manufacturers
invoiced the U.S. importer upon shipment of the goods and paid consideration. The importer
argues that even if CBP finds that the evidence provided does not squarely fit into the normal
pricing practices analysis (or any of the other illustrative examples), all evidence, when
considered in conjunction, should lead CBP to determine that the sales were at arm’s length.
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Information provided to CBP in a transfer pricing study may be relevant in examining the
application of the circumstances of the sale, but the weight to be given this information will vary
depending on the level of detail provided by the study. A significant factor is whether the
transfer pricing study has been reviewed and approved by the IRS. Whether products covered by
the study are comparable to the imported products at issue is another important consideration.
The methodology selected for use in a transfer pricing study is also relevant. Even though
transfer pricing studies by themselves are not sufficient to show that a related party transaction
value is acceptable for customs purposes, the underlying facts and the conclusions reached in
transfer pricing studies may contain relevant information in analyzing the circumstances of the
sales. Thus, while the evidence presented by the importer is not entirely objective and cannot
sustain a claim under a “pricing practices of the industry analysis,” it may be considered
evidence under the totality of the circumstances.
Here, the products sold by the comparable companies are of the same class or kind.
However, the U.S. importer’s adjusted margins with Cordex CIT/Cordenet were outside the
inter-quartile range. The fact that the margins were above the arm’s length range indicates that
prices were not consistent with how the industry sets its prices. Consequently, we find that the
sales price will be considered to be influenced by the relationship for purposes of the
circumstances of the sale test, and transaction value is not the proper method of appraisement.
When imported merchandise cannot be appraised on the basis of transaction value, it is
appraised in accordance with the remaining methods of valuation, applied in sequential order.
See 19 U.S.C. § 1401a(a)(1). The alternative bases of appraisement, in order of precedence, are:
the transaction value of identical or similar merchandise (19 U.S.C. § 1401a(c)); the deductive
value (19 U.S.C. § 1401a(d)); the computed value (19 U.S.C. § 1401a(e)); and the "fallback"
method (19 U.S.C. § 1401a(f)).
The transaction value of identical or similar merchandise is based on sales, at the same
commercial level and in substantially the same quantity, of merchandise exported to the United
States at or about the same time as that being appraised. See 19 U.S.C. § 1401a(c). This method
of appraisement is unavailable.
The next method of appraisement is deductive value. Under the deductive value method,
merchandise is appraised on the basis of the price at which it is sold in the U.S. in its condition as
imported and in the greatest aggregate quantity either at or about the time of importation, or
before the close of the 90th day after the date of importation. See 19 U.S.C. § 1401a(d)(2)(A)(i)-
(ii). However, at the time of entry, an importer may elect to reverse the order of appraisement
under deductive and computed value. See 19 U.S.C. § 1401a(a)(2) and 19 CFR § 152.101(c).
Here, the U.S. importer has elected to apply the computed value method before the
deductive value method. Under the computed value method, merchandise is appraised on the
basis of the material and processing costs incurred in the production of imported merchandise,
plus an amount for profit and general expenses equal to that usually reflected in sales of
merchandise of the same class or kind, and the value of any assists and packing costs.
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Title 19 U.S.C. § 1401a(e) provides the following regarding computed value:
(1) The computed value of imported merchandise is the sum of— (A) the cost or
value of the materials and the fabrication and other processing of any kind
employed in the production of the imported merchandise; (B) an amount for profit
and general expenses equal to that usually reflected in sales of merchandise of the
same class or kind as the imported merchandise that are made by the producers in
the country of exportation for export to the United States; (C) any assist, if its value
is not included under subparagraph (A) or (B); and (D) the packing costs.
(2) For purposes of paragraph (1)— (A) the cost or value of materials under
paragraph (1)(A) shall not include the amount of any internal tax imposed by the
country of exportation that is directly applicable to the materials or their disposition
if the tax is remitted or refunded upon the exportation of the merchandise in the
production of which the materials were used; and (B) the amount for profit and
general expenses under paragraph (1)(B) shall be based upon the producer’s profits
and expenses, unless the producer’s profits and expenses are inconsistent with those
usually reflected in sales of merchandise of the same class or kind as the imported
merchandise that are made by producers in the country of exportation for export to
the United States, in which case the amount under paragraph (1)(B) shall be based
on the usual profit and general expenses of such producers in such sales, as
determined from sufficient information.
The amount for general expenses and profit is considered as a whole. Section 152.106(c)
of the CBP Regulations (19 C.F.R. § 152.106(c)) provides:
Profit and general expenses. The amount for profit and general expenses will be
taken as a whole. If the producer’s profit figure is low and general expenses high,
those figures taken together nevertheless may be consistent with those usually
reflected in sales of imported merchandise of the same class or kind.
The Statement of Administrative Action (“SAA”), adopted by Congress, provides that
with respect to computed value:
The cost or value of the materials and the fabrication and other processing of any
kind employed in the production of the imported merchandise will be determined
on the basis of information supplied by, or on behalf of, the producer and will be
based upon the commercial accounts of the producer, if such accounts are consistent
with the generally accepted accounting principles applied in the country where the
goods are produced. The “amount for profit and general expenses” will be
determined on the basis of information supplied by, or on behalf of, the producer
and will be based upon the commercial accounts of the producer, provided that such
accounts are consistent with the generally accepted accounting principles applied
in the country where the goods are produced and unless the figures provided are
inconsistent with those usually reflected in sales, of merchandise of the same class
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or kind as the imported merchandise, that are made by producers in the country of
exportation for export to the United States.
The computed value proposed by the U.S. importer includes the manufacturer’s raw
material acquisition costs, the manufacturing costs, and SGA expenses including depreciation
and amortization expense, sales costs, general and administrative costs, and operating profits.
There is no evidence to indicate that the amount for profit and general expenses recorded on the
foreign manufacturer’s records is inconsistent with the amount equal to that usually reflected in
sales of merchandise of the same class or kind as the imported merchandise. The total entered
value for the baler twine declared on March 2, 2024 was $[X] (€[X] unit price equivalent to $[X])
and the proposed computed value is the same. The unit price for the baler twine included the
total raw material costs (€[X]/unit) and the manufacturing costs, general expenses and profit per
kilogram (€[X]/unit). For comparison purposes, the entered value of the baler twine, which was
declared on February 17, 2016, was $[X] (approximately $[X] per kilogram). The importer
should be prepared to provide to the CEE upon request documentation supporting the computed
value method of appraisement for all suspended entries filed since 2016 consistent with 19
C.F.R. § 141.88. Since deductive value is unavailable, in instances where computed value
cannot be used, appraisal under the fallback method under 19 U.S.C. § 1401a(f) using a modified
computed value may be appropriate.
HOLDING:
Based on the information presented, we find that the U.S. importer may use computed
value as an appropriate basis of appraisement provided the necessary information can be
obtained for all suspended entries since 2016. The importer must be prepared to provide to the
CEE upon request documentation which supports appraisement under the computed value
method for all entries upon request. In instances where the CEE disagrees with the proposed
computed values, the CEE may appraise the merchandise under the fallback method using a
modified computed value.
You are instructed to provide this decision to the internal advice requester, through its
counsel, no later than sixty (60) days from the date of the decision. Sixty days from the date of
the decision, the Office of Trade, Regulations and Rulings will make the decision available to
CBP personnel, and to the public on the Customs Rulings Online Search System (“CROSS”) at
https://rulings.cbp.gov/ which can be found on the U.S. Customs and Border Protection website
at http://www.cbp.gov and other methods of public distribution.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch
Cc: Karen Matei
Supervisory Import Specialist, Team DBH
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Apparel, Footwear and Textiles Center (AFT CEE)
U.S. Customs and Border Protection
Field Director
Office of Trade, Trade Regulatory Audit
U.S. Customs and Border Protection
200 Chestnut St., Suite 401
Philadelphia, PA 19106
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