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HQ 546820





September 28, 2002

VAL R:IT:V 546820 MMC

CATEGORY: VALUATION

Port Director
U.S. Customs Service
6747 Engle Road
Middleburg Hieghts, OH 44130

RE: Application for Further Review of Protest 4103-96-100183; related parties; sale for exportation to the U.S.

Dear Port Director:

This is in response to your memorandum dated July 29, 1997, forwarding an Application for Further Review (AFR) of Protest 4103-96-100183. The protest was submitted by Grunfeld, Desiderio, Lebowitz & Silverman, counsel on behalf of MII. The request concerns the appraisement of 5 entries of ladies wearing apparel based on transactions between UUU, SSS, TTT and MMM related factories, MII (related middleman/importer of record/protestant) and the LDS (U.S. related purchasers). Counsel states that it is his understanding that these entries are "test" entries, and that the result of this protest and AFR will have an impact upon a number of entries which have been suspended.

On October 13 and 14, 1994, your office sent detailed requests for information (CF 28) regarding each of the entries. Counsel for protestant responded to each separately in 5 letters dated March 13, 1995. You then sent proposed Notices of Action (CF 29) indicating that you intended to appraise the merchandise based upon the price between MII and the related U.S. purchasers. In response counsel sent a May 17, 1995 letter containing additional information. On June 21, 1995 you held a meeting with counsel concerning the matter. On June 29, 1995, counsel sent another submission with additional information. On December 26, 1995, you sent a Notice of Action informing counsel that a value advance had been taken because the documentation you had received failed to establish an arm's length transaction between the protestant and its related factories.

In a protest timely filed on April 10, 1996, counsel asserts that your decision to appraise the merchandise under transaction value at the price the related U.S.
purchasers paid for the goods was incorrect. Rather, counsel asserts that the subject merchandise should have been appraised as entered, at the prices that the middleman/importer paid its related factories. Our office received the AFR on August 4, 1997. A request for additional information was made by phone on October 19,1999 with a 30-day follow up letter sent on December 21, 1999. A meeting with counsel was held in February 2000 and counsel provided a supplemental submission on June 21, 2000.

Information provided in the original submission as well as the additional submissions and meetings has been taken into consideration in reaching this decision. Business proprietary information provided with this request will be accorded confidential treatment pursuant to 19 C.F.R. § 177.2(b)(7). Such information is designated by brackets, and will be redacted from the public version of this letter. We regret the delay in responding.

FACTS:

The AFR concerns the appraisement of 5 entries of ladies wearing apparel based on transactions between four related factories, one related middleman and 3 U.S. related purchasers. The following table illustrates the individual entries and transactions:

LADIES WEARING APPAREL
Entry Number/merchandise
Manufacturer
Country of Production
Middleman/ % ownership in factory
Store Division
00000000 lace teddy (underwear)
UUU
Sri Lanka
MII/ 50%
VSS
00000000000 ply "slip" shoulders-thigh
SSS
Sri Lanka
MII/50%
VSS
00000000000 ladies underwear
TTT
Israel
MII/25%
VSS
0000000000 ply "slip" shoulders-thigh
SSS
Sri Lanka
MII/50%
CS
0000000000 pull-over top
MMM
Sri Lanka
MII/42%
AF

In counsel's protest submission he asserts that the transactions are conducted through 3 main entities. These entities included the LI, "through" its "store divisions," examples of which are detailed under the title "store divisions" above; MII, which sells, merchandise to the store divisions; and the various related party factories from which MII "buys" the merchandise. According to counsel, LI "through its store divisions" is a retailer of men's women's and children's wearing apparel. Each of the store divisions develops various products, in conjunction with their various vendors and the products are then presented to a number of middlemen for pricing and possible sourcing.

In this case, counsel states that all of the products "were presented" to MII for pricing and sourcing. LI is related to MII. It also appears that the store divisions are related to LI. MII is, according to counsel's protest submission, a U.S. company incorporated in Delaware, located in Andover, Massachusetts and functions as a "trading company" that purchases garments from a number of foreign factories. In these five entries all of the factories are related to MII. Counsel indicates that when LI's store divisions present MII with potential products MII queries potential factories to obtain the best terms, taking into consideration price, terms of sale, quality and timeliness. According to counsel, MII engages in separate negotiations seeking price quotes with potential factories until it reaches an agreement on the price and terms.

Through the October 1994 information requests you asked for several things to support this claim. Specifically, in the information requests protestant was directed to provide all correspondence with the manufacturers including but not limited to purchase orders, order confirmations, commercial invoices money payments, inspections certificates, payment documents, etc. and to indicate how and when title and risk of loss passed from each party. Protestant was also asked to provide details concerning how prices were determined, specifically whether a price-list was involved. Third, you asked that the parties who provided quota be identified and when it was obtained. Fourth, you asked whether any commissions were paid in connection with the importation of the merchandise and whether the importer used an agent for the transactions.

In response to the document request counsel provided a purchase order from each of the store divisions, a production order from MII to each of the factories, proof of payment from MII to the factory and an invoice from the factory to MII. In addition to these documents, an invoice from the factory to MII, a packing list, a textile visa, a multiple country declaration, and an air bill were submitted at the time of entry. We note that the following phrase appears on all of the MII production orders to the related factories: "[t]his order is subject to all of the terms and conditions dated February 3, 1992 provided to you by purchaser (MII). By accepting this order, seller acknowledges receipt of and agrees to be bound by those terms and conditions." The February 3, 1992 agreement was not provided for our review. Additionally, we note that all of the production orders have a revision date of January 11, 1995, which is not explained. Finally we note that for all 5 entries the information on the packing lists, airway bills and textile visa forms comport with that of the submitted factory invoice.

For the first entry on the chart, counsel provided a March 21, 1994 purchase order from the store division to MII for 3,600 black sheer and lace teddies. The terms are indicated as F.O.B: VSS Warehouse. The unit cost is $0.00 with 3,600 ordered for a total of $00,000. A March 24, 1994 production order from MII to the factory was also provided. It is for the same quantity and described merchandise as the store division's purchase order. The costs listed on the production order are packing, estimated land cost and sales cost. The sales cost is the same price as the store division indicated on its purchase order to MII. A June 7, 1994 invoice from the factory to MII indicates that the goods are loaded in Colombo, Sri Lanka with a final destination of Columbus, Ohio and are shipped by air. The shipping terms are indicated as F.O.B.- Sri Lanka. The production order number is indicated on the invoice, as is the store division's purchase order number. The number of goods invoiced exceeds the number on the production order by 180. The price is indicated on a "per doz" basis and calculates out to $0.00 per unit. This is $2.10 less than the sales cost indicated on MII's production order.

A June 15, 1994 wire transfer remittance detail from MII to the factory was also provided. It indicates that MII remitted to the factory 00,00.00 presumably U.S. dollars. This is approximately $6,000 less than the sales cost on MII's production order. Additionally, the remittance indicates the factory invoice number. The amount indicated on the factory invoice and remittance match. A June 15, 1994 invoice from MII to the store division was also provided. The description of the goods is the same but the quantity of goods has been increased by 180 when compared to the purchase order the store division issued to MII. The unit price invoiced is $0.00, the same that appears on the store division purchase order and MII's production order. Finally, you forwarded a May 6, 1994 letter from MII to an import specialist in your port that states: "subject factory does not issue a price list. Prices are generally negotiated between MII and (the factory) on an order-by-order, garment-by-garment basis. The factory's other customers negotiate prices on the same basis."

For the second entry on the chart, counsel provided an April 1, 1994 purchase order from the store division to MII for 4,800 "knit cd lace b-dol." The terms are indicated as F.O.B: VSS Warehouse. The unit cost is $0.00 for a total of $00,000. At the bottom a sentence appears indicating "NOTICE: ORDER IS SUBJECT TO ALL TERMS AND CONDITIONS ON BOTH SIDES." No "other side" was provided for our review. Two copies of an April 7, 1994 production order from MII to the factory were also provided. The first copy has the sales cost, customer ship date and terms of sale blacked out. At the bottom it has a handwritten note that states "dates checked" "Version 2." The costs listed on the second production order to the factory are packing, estimated land cost and sales cost. The sales cost is the same price as the store division indicated on its purchase order to MII.

A June 16, 1994 invoice from the factory to MII indicates that the goods are loaded in Colombo, Sri Lanka with a final destination of Columbus, Ohio and are shipped by air. The shipping terms are indicated as F.O.B.(EX-FACTORY) Sri Lanka. MII's production order number is indicated on the invoice, as is the store division's purchase order number. The number of goods invoiced is 742 less than the number on MII's production order. The price is indicated on a "per dozen" basis and calculates out to $0.00 per unit. This is $3.11 less than what was indicated as the sales cost on MII's production order. A June 23, 1994 invoice from MII to the store division was also provided. The quantity is the same as is indicated on the factory invoice. The unit price is expressed on an individual unit basis and is invoiced as $0.00 per unit. This is the same price that appears on the purchase and production orders.

Finally, a July 7, 1994 wire transfer remittance was also provided. Counsel has highlighted one of the entries on the transfer. It indicates that MII remitted to the factory $0,000.00. None of the invoice numbers on the remittance, including the highlighted one, match the invoice submitted at entry.

For the third entry on the chart, counsel provided a May 15, 1994 purchase order from the store division to MII for 15,000 pairs of ladies underwear. The terms are indicated as F.O.B: VSS Warehouse. The unit cost is $0.00 for a total of $00,000. At the bottom a sentence appears indicating "NOTICE: ORDER IS SUBJECT TO ALL TERMS AND CONDITIONS ON BOTH SIDES." No "other side" was provided for our review. A May 13, 1994 production order from MII to the factory was also provided. It is for the same quantity and described merchandise described on the store division's purchase order. The costs listed on the production order are packing, estimated land cost and sales cost. The sales cost is the same price as the store division indicated on its purchase order. A July 12, 1994 invoice from the factory to MII indicates that payment is by "cash after receipt of goods", that the goods are FOB Ben Gurion airport shipped by air. MII's production order number is indicated on the invoice, as is the store division's purchase order number. The number of goods invoiced is 173 less than the number that appeared on MII's production order. The unit price is indicated as $0.00 per unit. This is $.40 less than what was indicated on MII's production order. A July 27, 1994 invoice from MII to the store division was also provided. The quantity is the same as that indicated on the factory invoice. The goods are invoiced as $0.00 per unit. This is the same price that appears on the purchase and production orders. Finally, a July 26, 1994 wire transfer remittance was also provided. It indicates that MII remitted to the factory 00,000.00. It correctly identifies this amount by the factory invoice number.

For the forth entry on the chart, counsel provided a June 30, 1994 "worksheet" from the store division to MII for 5,978 "diagonal chemise". The following phrases appear on the worksheet; "NOT A PURCHASE ORDER", and "IMPORTANT NOTICE TO VENDORS: [t]his worksheet is not a Purchase Order, contract, or binding agreement to purchase goods. Purchaser may be bound only upon Vendor's receipt of a signed Purchase Order." The unit cost is $0.00. A June 27, 1994 production order from MII to the factory was also provided. It is for the same quantity and described merchandise as appears on the store division's purchase order. The costs listed on the production order are packing, estimated land cost and sales cost. The sales cost is the same price as the store division indicated on the worksheet.

A September 5, 1994 invoice from the factory to MII indicates that the goods are loaded in Colombo, Sri Lanka with a final destination of Columbus, Ohio and are shipped by air. The description of the goods comports with that provided on the worksheet and MII production order. The shipping terms are indicated as "F.O.B.(EX-FACTORY) Sri Lanka. MII's production order number is indicated on the invoice, as is the store division's purchase order number. The number of goods invoiced is 502 less than the number on MII's production order. The price is indicated on a "per dozen" basis and calculates out to $0.00 per unit. This is $2.49 less than the sales cost indicated on MII's production order. A September 15, 1994 invoice from MII to the store division was also provided. The quantity is the same indicated on the factory invoice. The unit price is invoiced as $0.00 per unit. This is the same price that appears on the worksheet and production orders. Finally, a September 8,1994 wire transfer remittance was also provided. It indicates that MII remitted to the factory $00,000.00. It correctly identifies this amount by the factory invoice number.

For the fifth entry on the chart, counsel provided a March 4, 1994 purchase order from the store division to MII for 18,780 pairs of ladies long sleeve shirts. The terms are indicated as F.O.B: destination. The unit cost is $0.00 for a total of $000,000. At the bottom a sentence appears indicating "NOTICE: ORDER IS SUBJECT TO ALL TERMS AND CONDITIONS ON BOTH SIDES." No "other side" was provided for our review. A March 7, 1994 production order form MII to the factory was also provided. It is for the same merchandise described in the purchase order but the quantity has been reduced by 2,788. The costs listed on the production order are packing, estimated land cost and sales cost. The sales cost is the same price as the price the store division indicated on its purchase order.

A July 3, 1994 invoice from the factory indicates that the invoice is for MII. The production order number is indicated on the invoice, as is the store division's purchase order number. While a place for port of discharge, port of landing and final destination are all provided, nothing has been filled in. The number of goods invoiced is 516 less than the number on MII's production order and 3,304 less than the number on the store division's purchase order. The unit price is indicated on a "per dozen" basis and is as $0.00 per unit. This is $1.26 less than what was indicated on MII's production order. A July 8, 1994 invoice from MII to the store division was also provided. The quantity is the same indicated on the factory invoice. The unit price is invoiced as $0.00 per unit as it was on MII's production order. Finally, a July 5, 1994 wire transfer remittance was provided. It indicates that MII remitted to the factory $00,000.00. It correctly identifies this amount by the factory invoice number.

Concerning title and risk of loss, counsel indicated in his March 13, 1995 responses that "risk of loss for damaged or defective goods is borne by various parties: the factories that produced the fabric or defective goods, the various carriers (land, sea or air) that moved the goods and MII to the extent that it inspected the goods." Additionally counsel indicates that MII purchases the garments on "FOB foreign port" terms and holds onto title until the "international date line" where the various store divisions then take title to the goods.

After review of this information you issued an April 26, 1995, Notice of Action proposing a value advance because it "appears that MMM is an actual seller, rather than an agent. For lack of information to the contrary, this merchandise is hereby appraised at the resale price from MII to store divisions." [a]ny disputes of Customs' proposed valuation should include, but is not limited to, all of the highlighted information requests not addressed in the initial CF 28 responses."

In response to the proposed Notice of Action counsel sent a May 17, 1995 letter. In the letter counsel clarifies his initial account concerning the terms of sale by stating MII took title to the goods based on the terms of sale, ex-factory or FOB port of lading. MII arranged for the international transportation of the merchandise and entered the merchandise into the U.S. According to counsel, after the merchandise cleared U.S. Customs, the store divisions took title to the goods. Finally counsel states that "MII assumes the risks entailed in the purchase of the goods until it resells these goods in the United States," and states that the March 13, 1995 statements concerning transfer of title and risk of loss were an inadvertent error.

With respect to entries 1, 2 and 4 counsel provided order confirmations, changes in garment specifications, delivery schedules issued by MII and proof of payment between MII and its division stores. The order confirmations indicate that the sale price for the goods is the same price indicated on MII's production order and invoice to the store divisions. Each confirmation also has a "first cost" designation of 0.00. A total number of goods ordered is not indicated. It is unclear whether the confirmations are issued to the store division, the factory or both. The MII production orders are provided again. However, the sale price, customer ship date, the portion of the portion FOB which indicates "Customs" and appears above the second indication of FOB as-shipping point, and the terms indicator "C net 15," have all been blacked out. Additionally, Counsel submitted a variety of correspondence between "Andover-store division" and the factory. The correspondence indicates that the amounts to be shipped were the amounts ordered by MII not the amount invoiced by the factory. Finally, counsel states that "the company has advised us that no sourcing agreements between MII and its customers (factories) are in effect at this time."

In a June 29, 1995 submission sent as a follow up to a June 21, 1995 meeting counsel sent a copy of the marine cargo insurance policy issued for the benefit of LI. It covers all of LI's "associated, affiliated or subsidiary organizations". Counsel then states that "thus, those covered include MII". According to paragraph 13 of the contract, the policy's coverage begins at the point at which the merchandise becomes the risk or responsibility of those who are covered by the policy. Thus argues counsel the policy begins when one of the LI's subdivisions assumes responsibility for the goods. We note that the store divisions are also part of the LI's division and therefore would also appear to be covered by this policy. Counsel asserts however, in a footnote that "[i]nsurance coverage under the marine insurance policy ceases upon delivery to the retail division."

Additionally, counsel provided a December 22, 1992 buying agreement between MII and a related company MFE. In the letter counsel indicates that MFE is also covered by the insurance policy. Finally, in his protest submission, counsel returns to the assertion that MII purchases garments on "FOB foreign port" terms. It then, imports the merchandise into the U.S. as the importer of record, and resells the merchandise to the store divisions, after the goods have landed and cleared Customs in the U.S., on DDP terms to Customs in Columbus, Ohio.

In the protest submission counsel also indicates that it was advised that the related party factories arrive at prices for sale for exportation to MII in the same manner as they arrive at prices for sales to unrelated purchasers. Although counsel does not indicate who gave the advice, he indicates that sketches or samples are presented to factories for price quotes, terms and possible delivery dates. Then "factory management" calculates the cost to manufacture the product based on; the materials to be used, estimated labor costs, garment complexity, anticipated extraordinary expenses and overhead and profit to arrive at a price quote. Then prices and terms of sale are negotiated between the buyers and sellers based upon price quotes from competitors, the purchaser's resale price points, and the purchaser's historical reference to garments purchased in the past. Finally, if the parties can agree on a final price and terms of sale, then a sale occurs.

Counsel notes that factory management is "independent" from MII, because the "related" nature of the relationship between MII and these factories is based upon the fact that MII owns more than 5 percent of stock in each of them. The amount of ownership varies from factory to factory (see chart). Counsel asserts however, that generally, MII has a "minority" interest in the factory, and MII never has over a 50 percent interest in a factory. According to counsel the remaining shareholders of each factory are located in the country of production, and are "completely responsible for the management of the factories." They appoint all of the officers and hire all of the employees. Finally counsel claims that the factories have no commitments or restrictions that require them to enter into sales contracts that they believe to be contrary to the best interest of the factory. Notwithstanding their relationship, counsel asserts the merchandise for these entries should be appraised based upon the price paid by MII to the factories.

Counsel made a final submission on June 21, 2000, pursuant to a meeting with OR&R headquarters staff in February of 2000. In that submission counsel resubmits a production order from one of the 5 entries and submits another production order. This new production order is dated August 30, 1994 and indicates MII as the purchaser, MII as the customer and MFE as the factory. The sales cost and first costs have been blacked out as has the customer shipping date. Counsel again asserts that all prices between MII and its related vendors are arrived at as a result of an arm's length negotiations. In support of his assertion he makes the same arguments he put forth in his protest submission. Finally, counsel provides evidence of 3 more transactions with unrelated factories for "similar" garments but these similar garments were manufactured by unrelated factories in countries other than those in which the protested entries were manufactured.

ISSUE:

Whether the merchandise should have been appraised using the price between MII (importer of record) and the related factories?

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"), codified at 19 U.S.C. §1401a. §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 enumerated statutory additions, including:

(B) any selling commission incurred by the buyer with respect to the imported merchandise,

The term “price actually paid or payable” is defined in §402(b)(4)(A) of the TAA as:

...the 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...) made, or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller.

For imported merchandise to be appraised under transaction value, it must be the subject of a bona fide sale between the buyer and seller. Additionally, pursuant to section 402(b)(2)(A) of the TAA, transaction value is acceptable only in certain circumstances, e.g., where the buyer and seller are not related, or where related, the relationship does not influence the price actually paid or payable.

The first question we must first consider whether the evidence establishes that the transaction between the related factories and the MII are bona fide sales. For Customs purposes, the word “sale” generally is defined as a transfer of ownership in property from one party to another for consideration. J.L. Wood v. U.S., 62 CCPA 25, 33, C.A.D. 1139, 505 F.2d 1400, 1406 (1974) (J.L. Wood). While J.L. Wood was decided under the prior appraisement statute, Customs adheres to this definition under the TAA. The primary factors to consider in determining whether there has been a transfer of property or ownership are whether the alleged buyer has assumed the risk of loss, and whether the buyer has acquired title to the imported merchandise. Also relevant is whether, in general, the roles of the parties and circumstances of the transaction indicate that the parties are functioning as buyer and seller.

A review of the evidence submitted raises considerable questions about the nature and role of MII in this transaction. To begin with counsel indicates that a company LI is somehow involved in the transaction "through" its store divisions (U.S. purchasers). A review of an internet business research service indicates that MII is a subsidiary of LI and that the store divisions' parent company IBI is also a subsidiary of LI. As such it is possible that MII is acting as an agent for LI and not as a seller in its own right.

Further questions about the nature of the transaction are raised by the documents submitted for the subject entries. Concerning MII's production orders and worksheet, 3 out of 4 of the store division purchase orders all indicate that "Notice: Order is subject to all terms and conditions on both sides. No "other side" was provided for our review. A fourth document from one of the store divisions was a worksheet, which clearly indicated that it was an "important notice to vendors: this worksheet is not a purchase order, contract or binding agreement to purchase goods." Additionally, counsel states that "the company has advised us that no sourcing agreements between MII and its customers (factories) are in effect at this time." However, all of the production orders from MII to the related factories carry a statement indicating that they were subject to a February 3, 1992 agreement between MII and the factories. This agreement was not submitted. Review of all of the identified missing agreements is critical to understanding the roles of the parties and their relationships as either buyers and sellers or principles and agents. Without the agreements we are unable to discern the nature of the relationship between not only the store divisions and MII but also MII and its related factories.

The pricing of the goods between MII and the factory causes further confusion concerning the role MII plays in the transaction as either an agent or buyer. Counsel provides only vague answers as to how MII and the factories arrive at a price. Counsel indicates that the factories do not issue price lists. Rather, prices are generally negotiated between MII and the factory on an order-by-order, garment-by-garment basis. If this is the case, then there should be some evidence available about how MII and the factories negotiated the prices for the merchandise subject to the 5 entries at issue. In fact, counsel proffered other price quotes, for different garments as evidence that the parties deal with each other at arm's length.

Not only does the evidence submitted fail to clarify how the price was arrived at, but it also fails to establish what the actual final price is between MII and the factories. As was noted in detail in the facts section, there are significant differences between the "sales costs" listed on the unredacted MII production orders and the price per dozen actually invoiced by the factory and paid by MII. The unredacted MII production orders have the "sales price" listed as that which the U.S. purchaser pays. Yet, the factory invoices MII on a price per dozen basis and that price per dozen works out to be significantly less than what a price per dozen calculation would be for the sales cost indicated on MII's production order and the Store Division's purchase orders. Further evidence of confusion concerning pricing between the factory and MII can be found on the order confirmations. Those submitted indicate that the "first cost" is 0.00. Finally, we note that the quantities ordered with MII's production orders are in many instances significantly lower or higher than what the factory actually invoices. No explanation for the changes in quantity were provided. We note however, that the MII production orders all have a "revised date" of January 11, 1995. No explanation of the terms and scope of the revision were provided.

In addition to questioning the roles of the parties and how the price was arrived at, protestant's evidence concerning transfer of title and who bears the risk of loss, is also inconclusive. In the March 13, 1995 responses to requests for information counsel indicated that MII purchases the garments on "FOB foreign port" terms and holds onto title until the "international date line" where the various store divisions then take title to the goods. Counsel then indicates in his May 17, 1995 letter that this March 13, 1995 statement was an inadvertent error.

Yet, in his June 29, 1995 letter, counsel provided a buying agreement between MII and a related company MFE, that indicates that:

[t]he purchase orders and factory invoices provided in response to the CF-28s and CF-29s clearly indicate that the terms of sale are f.o.b. foreign port. MFE takes title to the goods at this point. [t]hus title and risk of loss shifts from the factory to MFE at the f.o.b. point. Title and risk of loss contractually shift from MFE to MII based on the Buying Agreement between the two parties. Paragraph 7 of the Buying Agreement provides that risk of loss and all incidents of ownership shift from MFE to MII at the International Date Line. [t]itle and risk of loss shift from MII to the retail store division after the merchandise is released from U.S. Customs and delivered to the retail division.

[t]his agreement shall apply to merchandise entered into the system after January 31, 1993.

Finally, in his protest submission, counsel asserts that MII purchases garments on "FOB foreign port" terms. MII then imports the merchandise into the U.S. as the importer of record, and resells the merchandise to the store divisions, after the goods have landed and cleared Customs in the U.S., on DDP terms to Customs in Columbus, Ohio. Counsel asserts that MII arranged for the international transportation of the merchandise and entered the merchandise into the U.S. and the airway bills and packing information seem to confirm that assertion.

Based upon these facts it is not clear whether and when title for the goods passes from the factories to MII and to the store divisions. In fact it is not clear what role MFE has in these transactions. While the statements on the various transaction documents seem to substantiate the version of transfer of title provided for in the protest submission, the language of the submitted buying agreement between MFE and MII indicates something different. The agreement went into effect on January 31, 1993 and there is no evidence that it was not still in full force and effect when the goods were entered on or about June, July and September of 1994.

Whether MII ever fully bears the risk of loss for the goods is also in question. Counsel himself acknowledges that risk of loss for damaged or defective goods is borne by various parties: the factories that produced the fabric or defective goods, the various carriers (land, sea or air) that moved the goods and MII to the extent that it inspected the goods.

Furthermore, the marine cargo insurance policy submitted is issued to LI and covers LI's "associated, affiliated or subsidiary organizations". Counsel asserts that "thus, those covered include MII". Counsel also indicates that MFE is covered by LI's insurance policy. According to paragraph 13 of the insurance contract, the policy's coverage begins at the point at which the merchandise becomes the risk or responsibility of those who are covered by the policy. Thus, argues counsel the policy begins when one of the LI's subdivisions assumes responsibility for the goods. What remains unclear however, is whether or not LI's insurance policy also covers the related party factories as they are themselves related to MII who is covered by the policy. Based upon this evidence it is unclear if and how much MII bears risk of loss for the goods. While it appears that MII and the factories may share the responsibility for defective merchandise or faulty quality control inspections, "risk of loss", as the phrase is used in context with transfer of title and the concept of "sale", appears to be covered by LI the parent company and not MII. LI is the one who secures insurance for loss of the goods in transit.

The unanswered questions of what role LI and MFE played in the transactions, how the price was arrived at between the factories and MII and who bears the risk of loss for the goods and when, lead us to conclude that the protestant has failed to overcome the presumption of correctness attached to the import specialist's appraisement. Accordingly, we must uphold the initial appraisement of the merchandise based on the transaction between MII and the store divisions.

HOLDING:

The protest is DENIED. The protestant has failed to overcome the presumption of correctness attached to the import specialist's appraisement. Accordingly, we must uphold the initial appraisement of the merchandise based on the transaction between MII and the store divisions.

In accordance with Section 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 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

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