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HQ 547116





March 22, 2001

RR:IT:V 547116 MMC

CATEGORY: VALUATION

Port Director
U.S. Customs Service
6 World Trade Center, RM 761
New York, New York 10048

RE: AFR of Protest 1001-98-100944; transaction value of imported merchandise; bona fide arm's length sale; sale for export to the United States; sufficiency of evidence

Dear Port Director:

This is in regard to the application for further review of Protest 1001-98-100944 concerning the proper transaction value, §402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. §1401a(b)), of women’s apparel and men’s shoes imported by IPI USA Corp.

FACTS:

The imported merchandise consists of six types of Italian women’s garments and men’s shoes. The merchandise was appraised using transaction value, based on the price paid by the importer/protestant [ ]. In a protest timely filed on August 30, 1998, protestant’s counsel contends that transaction value should be based on the alleged sale between the middleman [ ] and the manufacturer [ ].

The relevant documents submitted with the protest include:

An illegible purchase order for dresses; one of the 6 different types of women’s garments subject to the protest; The middleman’s invoice to the importer dated September 12, 1997. The invoice is for ladies dresses, jackets, overcoats, ensembles, pants and flannel jerseys as well as an order for men’s shoes. An airway bill for the merchandise.

According to counsel, the alleged purchase order is used as both an order confirmation to the U.S. retailer, and as the importer’s purchase order sent abroad. Counsel states that the prices on this purchase order are the prices agreed upon between the U.S. retailer and the importer. Prices between the importer and middleman are allegedly the subject of a seasonal price list. That price list was not submitted.

The invoice indicates the manufacturer is [ ]. However, a November 18, 1997, response by counsel to the port’s request for additional information indicates that this identified manufacturer [ ] in fact, purchased the goods at issue here from unrelated factories. No documents supporting this assertion were submitted with the response.

The middleman’s invoice indicates that the merchandise was to be shipped “FOB”, without a port or place designated. The U.S. retailer’s name and address appears on the invoice in a box designated “destination of goods”. The airway bill indicates that the middleman is the shipper and the importer is the consignee with the merchandise shipped freight collect, that the shipper does not insure the merchandise and that goods were flown from Florence, Italy to New York, New York.

Counsel indicates that the importer and middleman are related but claims that the manufacturer is not related to any of the parties. However, Dunn & Bradstreet reports indicate that the originally identified manufacturer [ ] is the parent company of the importer [ ]. Regardless, counsel claims that the price actually paid or payable was not affected by the relationship of the parties because each corporate entity operates as a distinct profit center. Furthermore, according to counsel, the price paid by the importer is comprised of a “core” price plus mark-ups taken by the manufacture and the middleman. No documents supporting these claims were submitted.

ISSUE:

Whether sufficient evidence has been submitted to support protestant’s claim that the imported merchandise should have been appraised based on the transaction between the manufacturer and the middleman.

LAW AND ANALYSIS:

The preferred method of appraising merchandise imported into the United States is transaction value pursuant to §402(b) of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA; 19 U.S.C. §1401a). Section 402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the “price actually paid or payable for the merchandise when sold for exportation to the United States”, plus certain enumerated statutory additions.

Counsel contends that the instant situation involves a multi-tiered transaction with the merchandise first being sold from the manufacturer to the middleman, then from the middleman to the importer. The importer then resold the merchandise to its U.S. retailer. Counsel’s position is that two sales took place, one between the manufacturer and middleman and another between the middleman and importer and that the sale between the manufacturer and middleman should be considered the sale for exportation for transaction value purposes. The port appraised the merchandise based on the sale between the middleman and the importer.

In Nissho Iwai American Corp. v. United States, 16 CIT 86, 786 F. Supp. 1002 (1992), rev'd in part, 982 F.2d 505 (Fed. Cir. 1992) [Nissho Iwai] and Synergy Sport International, Ltd. v. United States, 17 CIT 18 (1993), [Synergy], the U.S. Court of Appeals for the Federal Circuit and the Court of International Trade, respectively, addressed which sale may be used as the basis of transaction value for merchandise imported into the U.S. pursuant to a three-tiered distribution arrangement involving a foreign manufacturer, a middleman and a U.S. purchaser. In both cases the middleman was the importer of record. In each case the court held that the price paid by the middleman/importer was the proper basis for transaction value. Each 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 influence and involving goods clearly destined for the U.S.

In the context of filing an entry, Customs Form (“CF”) 7501, an importer is required to make a value declaration. As indicated by the language of CF 7501, the language of the valuation statute, and in accordance with the Nissho and Synergy decisions and our own precedent, we presume that transaction value is based on the price paid by the importer. See, HRL 545114 dated May 31, 1994 and HRL 545648 (IA 10/94) dated August 31, 1994.

In situations where an importer requests appraisement on the basis of a sale from the foreign manufacturer to the middleman the importer must submit sufficient evidence to show that the price is acceptable under the standard set forth in Nissho Iwai and Synergy. That is, the importer must establish that it was an “arm’s length sale,” and that the goods were “clearly destined for the U.S.” at the time they were sold or contracted to be sold.

In Treasury Decision (T.D.) 96-87, Cust. Bull 52/1, January 2, 1997, entitled Determining Transaction Value in Multi-Tiered Transactions, Customs set forth the documentation and information needed to support a claim that transaction value should be based on a sale involving a middleman and the manufacturer or other seller. It states, in pertinent part, that:

In order for an importer to rebut the presumption discussed above, certain information and documentation must be provided. Specifically, the requestor must describe in detail the roles of all the various parties and furnish relevant documents pertaining to each transaction that was involved in the exportation of the merchandise to the United States. If there is more than one possible sale for exportation, information and documentation about each of them should be provided. Relevant documents include, purchase orders, invoices, proof of payment, contracts and any additional documents (e.g. correspondence) which demonstrate how the parties dealt with one another and which support the claim that the merchandise was clearly destined to the United States. If any of these documents do not exist, or exist but are not available, the importer should so indicate. What we are looking for is a complete paper trail of the imported merchandise showing the structure of the entire transaction.

As stated above, the requestor must describe in detail the roles of all the various parties and furnish relevant documents pertaining to each transaction that was involved in the exportation of the merchandise to the United States. If there is more than one alleged sale, information and documentation about each of them should be provided.

In this case, no documentation between the middleman and the manufacturer was supplied. Also, all the relevant documents (purchase orders, invoices, proof of payment, contracts, etc.) relating to the transaction between the middleman and the importer were not included. As such, it is impossible to determine whether a transfer of property or ownership occurred or who may or may not have assumed risk of loss or acquired title to the merchandise subject to protest. Furthermore, without the necessary documents, the roles of the parties and circumstances of the transactions cannot be reviewed to determine whether/which parties are functioning as buyers and sellers.

Accordingly, we find that the submitted evidence is insufficient to support the claim that transaction value should be based on the alleged sale between the manufacturer and the middleman.

HOLDING:

Due to a lack of evidence submitted to prove the claim that the imported merchandise should have be appraised based on the transaction between the manufacturer and the middleman, the protest should be DENIED. This denial relates only to the entries at issue in this protest. An internal advice (HRL 547155) on a substantially similar transaction is pending in our office. When issued it will address the appraisement of current and future entries and will take into account all the evidence presented with the request for internal advice.

In accordance with §3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

Virginia L. Brown,
Chief
Value Branch

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